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Hard Peg versus Soft Float. A Tale of Two Latin-American Countries

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  • Martin Grandes
  • Helmut Reisen

Abstract

This paper deals with how the exchange-rate regime of Argentina and Mexico shaped macroeconomic performance over the period 1994-2001. The purpose of the analysis is to draw lessons for Latin American and other countries on whether and how the choice of the exchange-rate regime can help sustained growth. As it is impossible to isolate the growth effect of the exchange-rate regime in a comparative country study, the paper emphasises those macro variables that have been identified in the theoretical and empirical literature as important channels through which the choice of the regime affects economic performance: a) investment, b) trade openness, c) capital flows and d) fiscal or institutional rigidities and public debt sustainability. These channel checks confirm 1997/1998 as the ¿breakeven¿ year, since Mexico? managed floating currency regime has yielded, higher pay off relative to Argentina? currency board, faced with successive external shocks.

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Bibliographic Info

Article provided by Presses de Sciences-Po in its journal Revue économique.

Volume (Year): 54 (2003)
Issue (Month): 5 ()
Pages: 1057-1090

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Handle: RePEc:cai:recosp:reco_545_1057

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  1. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
  2. Felipe Morandé & Klaus Schmidt-Hebbel, 2000. "Chile's Peso: Better Than (Just) Living with the Dollar?," Working Papers Central Bank of Chile 68, Central Bank of Chile.
  3. Reisen, Helmut, 1989. "Public debt, North and South," Policy Research Working Paper Series 253, The World Bank.
  4. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  5. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
  6. Eduardo Borensztein & Andrew Berg, 2000. "The Pros and Cons of Full Dollarization," IMF Working Papers 00/50, International Monetary Fund.
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  8. Julio Nogués & Martín Grandes, 2001. "COUNTRY RISK: Economic Policy, Contagion Effect or Political noise?," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 125-162, May.
  9. Ffrench-Davis, Ricardo & Larrain, Guillermo, 2002. "How Optimal are the Extremes? Latin American Exchange Rate Policies During the Asian Crisis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  10. Reisen, Helmut & Soto, Marcelo, 2001. "Which Types of Capital Inflows Foster Developing-Country Growth?," International Finance, Wiley Blackwell, vol. 4(1), pages 1-14, Spring.
  11. John Williamson, 2000. "Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa60.
  12. Yan Sun, 2003. "Do Fixed Exchange Rates Induce More Fiscal Discipline?," IMF Working Papers 03/78, International Monetary Fund.
  13. Andreas Freytag, 2002. "Choice of an Exchange-Rate Arrangement, Institutional Setting and Inflation: Empirical Evidence From Latin America," OECD Development Centre Working Papers 198, OECD Publishing.
  14. Carlos A. Rodríguez, 1999. "Macroeconomic Policies: Can We Transfer Lessons Across LDC's?," CEMA Working Papers: Serie Documentos de Trabajo. 150, Universidad del CEMA.
  15. Schmidt-Hebbel, Klaus & Serven, Luis & Solimano, Andres, 1994. "Saving, investment, and growth in developing countries : an overview," Policy Research Working Paper Series 1382, The World Bank.
  16. Vivek B. Arora & Martin D. Cerisola, 2000. "How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?," IMF Working Papers 00/148, International Monetary Fund.
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