Mexico’s Business Cycle
The term business cycle or economic cycle refers to the fluctuations of economic activity around its long-term growth trend. It involves shifts over time between periods of relatively rapid growth of output-recovery and prosperity, and periods of relative stagnation or decline- contraction or recession. These fluctuations are often measured using real gdp.
Despite being termed cycles, these fluctuations in economic growth and decline do not follow a purely mechanical or predictable periodic pattern. In recent years economic theory has moved towards the study of economic fluctuation rather than a 'business cycle'. Some economists believe calling the business cycle a "cycle" to be a misnomer, because of its non-cyclical nature.
They believe that for the most part, excluding very large supply shocks, business declines are more of a monetary phenomenon. However, the term is still widely used. Mexico's economy has achieved broad stability and enhanced resilience in recent years, and the country has enjoyed steady growth. Although linked strongly to the currently weak US economy, several factors including the modest external current account deficit, helped by the high oil export prices, FDIs, low external debt ratios, comfortably positioned FE reserves, well supervised financial regulations and well capitalized, liquid and profitable banks have contributed towards strengthening Mexico’s position.
Business cycles in the developing world are fairly unfamiliar to the general world even today. A major issue facing developing economies may be the presence of a greater degree of uncertainty compared to developed economies. Characteristics of business cycles- Fluctuations of aggregate economic activity. 2.Cycles Expansion/Boom and Contraction/Recession. Peak and Trough being the turning points of the business cycle. Comovements of many macro variables over the business cycle. Business Cycles are Recurrent but not periodic. Persistence of economic activity *Sources of the *Mexican business cycles. In order to identify the possible sources of business cycles in Mexico, 4 periods were reviewed.
The first reviewed period from 1970-81 was characterized by an import substitution strategy, mounting economic distortions, particularly in the financial sectors, restrictions to FDIs and domestic and external imbalances. In response to low growth rates in the early 1970’s, expansionary fiscal policies were implemented by the Mexican government. This accelerated inflation, appreciated the local currency in real terms and real interest rates were kept artificially low.
In conclusion, regardless of Macropoland’s current economic condition, it is fair to say that it is all part of the business cycle. The business cycle has three parts: peak, trough, and peak. The peak is the date that the recession starts. In Macropoland’s case, the peak would be at the beginning of 1973, its trough somewhere between 1973 and 1974, and then its peak again at 1974. In the second scenario, Macropoland is either at its trough, where it is about to head up again because of its low inflation rate, or it is at its expansion, on its way to heading to its next peak.
Mexico declared its independence from Spain in Sept, 16, 1810, and for the next 100 years what followed was a period of political instability of rule under monarchies, federal republics and dictatorships. Finally in 1910, a revolt on the autocracy under Porfirio Diaz led to the start of the M...
This paper argues that the Mexican peso crisis of December 20 should have been expected and foreseeable. In the year preceding the crisis, there were several indicators suggesting that the Mexican economy and peso were already under extreme pressure. The economy bubble was ballooning to burst so much so that it was simply a crisis waiting to happen.
Pollock, A. J. (2011). Boom and bust: Financial cycles and human prosperity. Washington, DC: AEI Press.
Mexico’s economy was very unstable and unfair in comparison to the U.S. and Canada’s economic standing. But even though Mexico’s economy was bad, Canada and the U.S. ignored that Mexico wasn’t in any condition to enter as an equal partner (Henderson 121). The overvalued peso in Mexico also caused many problems economically. Since the peso was overvalued for many years, when the peso did float in 1994, it lost 20 percent of its value (Henderson 123). Due to this drastic change to Mexico’s currency, Mexicans were unable to make their payments nor buy goods because the prices rose drastically, which caused many businesses to shut down or lay off their workers (Henderson 123). This was the start of the many problems yet to come because these countries would be trading unequally with Mexico since Mexico didn’t have much to give besides workers who would work for cheap
There was a huge revolution in the country of Mexico that started in the year 1910, led by Porfirio Diaz, the president of Mexico in 1910. In the 1860’s Diaz was important to Mexican politics and then was elected president in 1877. Diaz said that he would only be president for one year and then would resign, but after four years he was re-elected as the President of Mexico. Porfirio Diaz and the Mexican revolution had a huge impact on the country of Mexico that is still felt in some places today.
Kehoe, Timothy J. (November 2010). Why Economic Reforms Have Not Generated Economic Growth in Mexico. Kim J. Ruhl Department of Economics, NYU Stern School of Business. Retrieved from http://www.kimjruhl.com/storage/data/KehoeRuhlJEL.pdf
De Cordoba, José & Lunhow, David. “The Perilous State of Mexico.” The Wall Street Journal. Dow
Unstable economy – Economy changes constantly. Changes in interest rates, inflation and unemployment rates affect the demand of the product;
“The Mexican revolution was an outgrowth of the resentment that had built up during Diaz’s 34 year regime” (Overfelt, Robert). Porfirio Diaz was president at the time the Mexican revolution began. He had a rule of 34 years, from 1876- 1880 and from 1884- 1911. Although Diaz did modernize many aspects of Mexico, including creating train tracks, Diaz favored wealthy landowners and industrialists. His close circle of friends...
Over the past five years the Australian economy has gone through many changes experiencing both the peaks and troughs associated with business cycle.
“Microeconomics and macroeconomics can be described in terms of small-scale vs. large-scale or in terms of partial vs. general equilibrium. Perhaps the most important distinction, however, is in terms of the role of equilibrium. While issues in microeconomics seldom challenge the notion of a naturally occurring equilibrium, the existence of business cycles and, especially, unemployment suggests too many observers that macroeconomics raises issues of a different character.” (McConnell & Brue, 2004).
Truman, Edwin M. . "The Mexican Peso Crisis: Implications for International Finance." Federal Reserve Bulletin 0 (1996): 199-209.
The history of political instability in Mexico and its need for revolution is very complex and dates back to the colonization of Mexico by the Spaniards in the 1500s. However, many aspects of the social situation of Mexico when the Revolution broke out can be attributed to the thirty-year dictatorship of President Porfrio Diaz, prior to 1911. The Revolution began in November of 1910 in an effort to overthrow the Diaz dictatorship. Under the Diaz presidency, a small minority of people, primarily relatives and friends, were in ...
The Latin American Debt crisis did not occur over night, the crisis was many years in the making and signs of its arrival were prominent in Latin American society. The reasons for its occurrence are also expansive; some fault can also be place in countries outside of Latin America. The growth rate in the real domestic product of many Latin American countries grew at a constantly high rate in the decade prior to the crisis in the 1980s, this growth led to an increase in foreign investment, corporate investment, and the world began supporting these developing nations (Ocampo). The foreign investments into Latin America created a new international financial system that gave the foreign banks access the funds to give massive loans to the developing nations of Latin America. However, the affluence was not continuous. A rise in natural resources occurred in the mid-1970s, which led to increase the prices of imported goods, and thus Latin American countries would have to find a way to pay back these deficits, which then led them to borrowing more money. By the end of the 1970s, Latin America was in debt to for over $150 billion, and the growth rates for each nations debt varied greatly with Mexico and Brazil taking on more than half of the debt themselves.