The Mexican EconomyInvestment Grade or Peso Bubble?
San Antonio BusinessSan Antonio Business
and Economics Societyand Economics Society
Jorge G. Gonzalez
Trinity University
The events of 2001
• Economic slowdown in U.S.
• Mexican government gridlock
• Great relations with U.S.
• Decline in the price of oil
• September 11th
• Crisis in Argentina
• Yes to the World Cup!
Mexico’s Reaction
• ¿Peso’s debacle?
Exchange RatePesos per U.S. Dollar
456789
1011
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Source: Banco de México www.banxico.org.mx
Exchange RatePesos per U.S. Dollar
456789
1011
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Source: Banco de México www.banxico.org.mx
Mexico’s Reaction
• Peso’s debacle?
• Capital flight?
Foreign Direct InvestmentBillions of Dollars
2.64.8 4.4 4.4
11.0 9.5 9.2
12.811.9
12.514.2
24.7
0.0
5.0
10.0
15.0
20.0
25.019
90
1992
1994
1996
1998
2000
Source: Banco de México www.banxico.org.mx
Mexico’s Reaction
• Peso’s debacle?
• Capital flight?
• Economic crisis?
Real GDP% Change
4.4
-6.2
5.26.8
5.03.6
6.6
-0.3
-8.0-6.0-4.0-2.00.02.04.06.08.0
1994 1995 1996 1997 1998 1999 2000 2001
Source: Banco de México www.banxico.org.mx
Mexico’s Reaction
• Peso’s debacle?
• Capital flight?
• Economic crisis?
• Fiscal crisis?
Government BalanceBalance / GDP
0.2 0.0 0.0
-0.7
-1.2 -1.1 -1.1-0.7
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1994 1995 1996 1997 1998 1999 2000 2001
Source: SHCP www.shcp.gob.mx
Mexico’s Reaction
• Peso’s debacle?
• Capital flight?
• Economic crisis?
• Fiscal crisis?
• Inflationary spiral?
Inflation
7.05
51.97
27.70
15.7218.6112.32
8.964.40
0.00
10.00
20.00
30.00
40.00
50.00
60.00
1994 1995 1996 1997 1998 1999 2000 2001
Source: Banco de México www.banxico.org.mx
Bumps in the road?
• Super Peso
Inflation Differential vs. Exchange Rate
1995 1997 1999 2001
0
100
200
300
400
Inflation
Exchange Rate
295
188
Source: Banco de México www.banxico.org.mx
International TradeBillions of Dollars
94 -
I95
- I
96 -
I97
- I
98 -
I
99 -
I
00 -
I
01 -
I
10
20
30
40
50
Exports
Imports
Source: Banco de México www.banxico.org.mx
¿Piedras en el camino?
• Super Peso
• U.S. economy
• Political gridlock
• Income Inequality and Poverty
The Mexican EconomyInvestment Grade or Peso Bubble?
San Antonio BusinessSan Antonio Business
and Economics Societyand Economics Society
Jorge G. Gonzalez
Trinity University
The Mexican EconomyInvestment Grade or Peso Bubble?
San Antonio BusinessSan Antonio Business
and Economics Societyand Economics Society
Jorge G. Gonzalez
Trinity University
www.trinity.edu/jgonzal1
