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.
The depression in the 1930’s in the country of Argentina was one of the most devastating internationally. In 1929, Argentina had the fourth highest gross domestic product; however a few short months later, this would no longer be considered the case. Considering that the economy heavily depended on foreign trade for daily essential produces, the economy was deficient of vital goods and thus lacked important industry. Mainly dependent on the foreign capital from Great Britain at the time, domestic industry was severely affected by the market crash due to the halt of British domestic capital investment. Through the Domino Effect, mass and widespread unemployment was a major and constant theme in the Argentinian culture at the time. This further affected the government revenue dropped significantly as the export of the country faulted investment and imports were decreased exponentially due to the international depression. As a result of the decline in national revenue, grand deficits began to appear. To repair the shortage of the countries’ profits, the government began to borrow mo...
Mexico’s political and economic stability from 1940-1982 can be well understood by looking at one of Sergio’s televisions. In Mexican Lives, Judith Adler Hellman introduces the reader to Sergio Espinoza, a businessman who once employed some 700 workers to produce televisions, stereos and sound systems. His televisions’ high production costs, low quality, high prices and inaccessibility to the poor sketch a rough microcosm of the period from 1940-1982 by laying bare the inefficiencies of import substitution industrialization and the vast inequalities in Mexico. From 1940-82, economic growth and stability came at the expense of social justice and political pluralism. In particular, the Mexican campesinos, the backbone of the revolutionary Zapatista uprising, suffered from the economic development model and from the PRI’s ability to muzzle dissent.
This paper aims to discuss the Short-Term and Long-Term Impacts of the Great Recession and
Mexico was one of Citibank's main emerging market customer bases in the early 1990s. After a very rocky relationship through the 1980s, when Mexico's government declared an inability to pay its foreign commercial bank debt, including more than $US 3 billion owed to Citibank, the country had finally returned to a positive growth path and was delivering solid profits to Citibank in both corporate/institutional banking and retail banking. Mexico's economy grew at an annual rate of more than 5% during the 1990-1994 periods. However, the problems of an overvalued currency, heavy inflow of financial investments into high-yield Mexican securities, and political events in 1994 produced a dramatic decline of confidence in Mexico. Mexican and foreign investors saw the January uprising in Chiapas against M...
The decreasing current account, increasing capital account, depleting international reserves, declining real GDP growth and increasing dollar-denominated tesobonos all pointed towards the vulnerability of the Mexican economy. In view of the repeated political unrests, Mr. Woo and the others should have expected this crisis. But they based their decisions on surface information and market sentiments that had over-valued the market potential.
ii. The economy is said to be experiencing recession when demands for certain products and services shrink. When demand falls, the prices will also decrease. When this happens, companies will not be able to make a lot of profit. To survive in the industry, they needed to cut some of their staffs. During this period of time, the rate of unemployment is rising. When they do not have enough workers, the productions are not as numerous as during the ‘booming’ state. Because of the...
When we hear discussions or read articles about drug wars, killings, and illegal immigration into the United States, many of us immediately think of Mexico. As a nation, Mexico is a much greater country than these commonly referred to issues. Mexico is a country with a broad history, deep family culture, and an economy fueled by oil and tourism. The United States Department of State (USDS) offers a broad range of information on countries outside the US, including Mexico. I found a wealth of information about Mexico through the USDS Background Note provided on their website located at www.state.gov. I will outline for you the key information found in this report, and others, related to the Mexican economy, culture, and more.
It has been 5 years now, but the world economy is still hovering over with ill effects of global economic recession. Different economist define recession in a different way but one common definition which can be derived is that recession is long lasting and prime reason for slowdown to economic activity(GDP). In terms of measuring the effects of recession, the broadest indicator of economic activity is real gross domestic product(GDP). Our following section will discuss how the economic activities in US has actually decreased since the beginning of market turmoil.
Over the past five years the Australian economy has gone through many changes experiencing both the peaks and troughs associated with business cycle.
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’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
...cy loan to Mexico in January 1995. However, the economic crisis was the worst in Mexico since the global economic depression of the 1930s, and resulted in negative economic growth in the country in 1995 and 1996. The economic crisis led to a serious decline in the standard of living for most Mexicans, as well as an increase in extreme poverty. The nation's gross domestic product (GDP), the value of all goods and services produced domestically by a country, declined 6.2 percent from 1994 to 1995. Since then the economy has been recovering. In 1998 the GDP was $393.5 billion.
Business cycles are defined in the Webster dictionary as “economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles”. These cycles have three main characteristics; expansion, recession, and depression. Expansion is known as increases in the demand for capital and consumer goods. Recession is known as the time when an economy slows down, and the level of sales and production start declining. Depression is know as the Demand for products and services decrease, forcing companies to shut down some production facilities, a period of recession ushers in depression.
Truman, Edwin M. . "The Mexican Peso Crisis: Implications for International Finance." Federal Reserve Bulletin 0 (1996): 199-209.
In December 2007 The National Bureau of Economic Research (CNN) said that the United States of America had fallen into a recession. The recession meant that people were loosing jobs and that people were spending too much money and even money that they did not have. A major reason that the United States fell into the recession was because banks and private businesses were giving credit to people who could not afford to pay back or had a bad credit to begin with. This was a major problem to all types of busin...