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Currency Boards and Debt Traps: Evidence from Argentina and Relevance for Estonia

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  • François J. Gurtner

Abstract

This paper analyses the November 2000 liquidity crisis that brought Argentina near default on its foreign debt. The main purpose of this paper is to assess whether this crisis may be taken as a warning signal for Estonia, given the similar exchange‐rate system shared by the two countries. It seems that with a low level of public debt and a balanced budget, Estonia will not face a similar liquidity crisis as its Latin American counterpart, which remained heavily reliant on foreign borrowings. But the substantial real exchange‐rate appreciation of the kroon under the Currency‐Board Arrangement has resulted in serious external imbalances, which will need to be corrected to avoid balance of payments pressure and reduce Estonia's high dependency on the level of foreign direct investments.

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  • François J. Gurtner, 2003. "Currency Boards and Debt Traps: Evidence from Argentina and Relevance for Estonia," The World Economy, Wiley Blackwell, vol. 26(2), pages 209-228, February.
  • Handle: RePEc:bla:worlde:v:26:y:2003:i:2:p:209-228
    DOI: 10.1111/1467-9701.00518
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    Cited by:

    1. Yu Hsing, 2007. "Analysis of exchange rate fluctuations in Estonia: test of the interest parity condition and the open economy model," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(1), pages 51-54, January.
    2. Benkovskis, Konstantins, 2005. "Econometric analysis and forecasting of Latvia's balance of payments," MPRA Paper 23274, University Library of Munich, Germany.

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