The Mexican intertemporal budget constraint: Persistent signals of an eventual collapse

Abstract

This paper examines the sustainability of the Mexican current account deficit prior to the December 1994 crisis. It tests whether or not the Mexican economy was satisfying its intertemporal budget constraint, and finds that signals of possible trouble without a change in policies were present long before the crisis. The tests used are based on the Wickens-Uctum criterion for the sustainability of current account deficits, extended to include the case of possible interventions.