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Offsetting and Sterilization Mechanisms in Argentina (1992–2014)

Author

Listed:
  • Carolyn Thomas

    () (Metropolitan State University of Denver, Department of Economics,Campus Box 77, P.O. Box 173362, Denver, CO 80217)

  • Nicolás Cachanosky

    () (Metropolitan State University of Denver, Department of Economics,Campus Box 77, P.O. Box 173362, Denver, CO 80217)

Abstract

We test the existence and extent of capital flows as an offset to monetary policy in Argentina from 1992–2014. After providing an analysis of Argentina’s past and current economic conditions, a theoretical framework of the offset and sterilization mechanisms will be provided. Then, with the use of VAR and IRF analysis, it is shown that a one standard deviation shock to monetary policy (measured by changes in net domestic assets) is offset between 27 %–32 % by responsive capital flows (measured by changes in net foreign assets). Furthermore, the results indicate that the Argentine government more than sterilizes shocks to capital flows through compensation of expansionary monetary policy.

Suggested Citation

  • Carolyn Thomas & Nicolás Cachanosky, 2016. "Offsetting and Sterilization Mechanisms in Argentina (1992–2014)," Credit and Capital Markets, Credit and Capital Markets, vol. 49(4), pages 515-534.
  • Handle: RePEc:kuk:journl:v:49:y:2016:i:4:p:515-534
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    More about this item

    Keywords

    Argentina; foreign exchange market; offset mechanism; sterilization; capital flows;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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