U.S. Federal Reserve Monetary Policy and the Fisrt Crisis of Securitization: Mexico and Latin America, 1994-1995

The decisions of the Federal Reserve of United States (Fed)determinig interest rates have played a critical role in capital inflows/outflows toward Mexico and Latin America. The causal relationship that exists between the Fed and emergin markets is quite close; a clear example of this is the first crisis of securitization on the global level, which originated in Mexico in 1994. The monetary policy of the Fed supported the expansion of U.S. investment banks and some institutional investors, thus creating not only an enormous bubble in Mexico and other local financial markets in Latin America through the expansion of portfolio investment, but also succesive financial crises during the 1990s when those financial capital flows reversed themseleves.