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The Balance of Payments and Borrowing Constraints: An Alternative View of the Mexican Crisis

Staff Report 212 | Published May 1, 1996

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Authors

photo of José-Víctor Ríos-Rull

José-Víctor Ríos-Rull University of Pennsylvania

The Balance of Payments and Borrowing Constraints: An Alternative View of the Mexican Crisis

Abstract

In this paper we develop a model in which a country faces a balance of payments crisis if constraints on its international borrowing bind. We use the model to describe the dynamics of the trade balance, capital account, and balance of payments of a country that borrows to finance consumption following sweeping macroeconomic and structural reforms and then hits constraints on its international borrowing. We compare the predictions of this theoretical example with events in Mexico from 1987 through 1995.


Published in: _Journal of International Economics_ (Vol. 41, No. 3-4, December 1996, pp. 331-349) https://doi.org/10.1016/S0022-1996(96)01440-7.