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Testing the Exogeneity of Argentine Devaluation and Default Risks in Retrospect

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  • Hildegart A. Ahumada
  • Maria Lorena Garegnani

Abstract

This paper studies the relationship between devaluation and default risks during Argentina's convertibility regime. Before default and devaluation occurred, a harder variant of the currency regime was under discussion. An often-suggested argument among the supporters of dollarization was that the probability of default could have been reduced by removing fears of devaluation. For this to be true, default risk must be dependent on the devaluation risk. Long-run relationships and 'exogeneity' are examined using a 'cointegrating vector' system approach. The results show that only devaluation risk can be modelled on default risk. No empirical evidence is found in favour of dollarization. Moreover, these conclusions are maintained when the information set is expanded to include the Latin American risk and Argentine macroeconomic variables. Copyright 2005 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 67 (2005)
Issue (Month): 5 (October)
Pages: 647-672

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Handle: RePEc:bla:obuest:v:67:y:2005:i:5:p:647-672

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Cited by:
  1. Martín Grandes, 2007. "The Determinants of Sovereign Bond Spreads: Theory and Facts From Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(130), pages 151-181.
  2. Ricardo Bebczuk & Maria Lorena Garegnani, 2012. "Real State as Housing and as Financial Investment: A First Assessment for Argentina," Department of Economics, Working Papers 095, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.

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