New Model Accurately Predicts Mexican Peso Crises, Offers Solutions
The article predicts the likelihood of currency crises and expected devaluations in Mexico from 1980 to 1986. By analyzing factors like internal money creation and external credit shocks, the researchers successfully forecasted the probability of attacks on the peso and predicted post-collapse exchange rates. They found that reducing domestic credit growth and increasing uncertainty around it could have lessened currency speculation against the peso during crisis periods.