The Role of Financial Derivative Instruments in the Emerging Market Financial Crises of the Late 1990s: The Mexican Case

Hayali A.

MEXICAN STUDIES-ESTUDIOS MEXICANOS, vol.30, no.2, pp.479-521, 2014 (AHCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 30 Issue: 2
  • Publication Date: 2014
  • Doi Number: 10.1525/msem.2014.30.2.479
  • Journal Indexes: Arts and Humanities Citation Index (AHCI), Scopus
  • Page Numbers: pp.479-521
  • Karadeniz Technical University Affiliated: Yes


Although derivatives were developed for the treatment of some diseases, such as risks and volatilities, ironically, as experienced in the 1990s, they, themselves, created them as sometimes "adverse effects" of hedging or with deliberately harmful purposes of speculation. This paper aims to analyze the role of financial derivatives in the emerging markets financial crises of the 1990s. In this regard, it deals with the Mexican case through a VAR-GARCH approach. The paper found that financial derivatives had an increasing impact on the currency crises of Mexico. This was an immediate destabilizing effect on the volatility of the spot exchange rates.