ABSTRACT
Authoritative studies of the Mexican currency crisis of 1994-95 agree that it ought to be seen in terms of two distinct stages: an initial devaluation that acted as an adverse signal triggering massive capital outflows, and a post-devaluation financial and economic collapse (Calvo and Mendoza 1996; Sachs et al. 1996). Calvo (1996:219) has noted that:
if there is a ‘bad’ equilibrium lurking in the background, a devaluationespecially, an unscheduled devaluation-could coordinate expectations and help push the economy to the ‘bad’ equilibrium.
