ABSTRACT

In 1982, 1985, 1987 and 1994 Mexico registered major exchange rate devaluations; in the rst and in the last of these episodes it was the epicenter of an emerging markets’ nancial crisis that required international intervention. Our point of departure for an understanding of the determinants of Mexico’s abrupt exchange rate movements is that the models to analyze them can be classied into three generations of models. This understanding is required to assess if the institutional reforms they instigated are effective to avoid their recurrence, to reduce vulnerability of the economy to external shocks and to induce market participants to internalize cost implied by exchange and interest rates uncertainty.