IDEAS home Printed from https://ideas.repec.org/h/nbr/nberch/0156.html
   My bibliography  Save this book chapter

International Borrowing and Macroeconomic Performance in Argentina

In: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences

Author

Listed:
  • Kathryn M. E. Dominguez
  • Linda L. Tesar

Abstract

This paper provides an overview of the major economic events in Argentina from the adoption of the convertibility plan in 1991 to the collapse of the exchange rate regime in 2001. We focus on the relationship between the credibility of the currency board and capital flows, and the inescapable link between fiscal and monetary policy. Argentina inadvertently entered into a vicious circle with financial markets -- one in which it felt compelled to raise the exit costs from the currency board in order to maintain the regime%u2019s credibility. As exit costs mounted, financial markets became increasingly concerned about the dire implications of a devaluation, which in turn, compelled the government to raise exit costs further. In the late 1990s, when Argentina went into recession, it required some sort of stimulus -- either a loosening of monetary policy (i.e. a devaluation) or fiscal stimulus. But either way spelled disaster. The added pressure of capital outflow, first by international investors and then the withdrawal of deposits from the Argentine banking system, eventually tipped the scales.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Kathryn M. E. Dominguez & Linda L. Tesar, 2007. "International Borrowing and Macroeconomic Performance in Argentina," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 297-348 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:0156
    as

    Download full text from publisher

    File URL: http://www.nber.org/chapters/c0156.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, pages 379-408.
    2. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 1-74.
    3. Rigobon, Roberto, 2002. "The curse of non-investment grade countries," Journal of Development Economics, Elsevier, pages 423-449.
    4. Enrique G. Mendoza & Katherine A. Smith, 2002. "Margin Calls, Trading Costs, and Asset Prices in Emerging Markets: The Finanical Mechanics of the 'Sudden Stop' Phenomenon," NBER Working Papers 9286, National Bureau of Economic Research, Inc.
    5. Alfredo Cuevas, 2003. "Reforming Intergovernmental Fiscal Relations in Argentina," IMF Working Papers 03/90, International Monetary Fund.
    6. repec:rus:hseeco:123922 is not listed on IDEAS
    7. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
    8. Sebastian Edwards, 2002. "The Great Exchange Rate Debate after Argentina," Working Papers 74, Oesterreichische Nationalbank (Austrian Central Bank).
    9. Marcelo Dabos & Maria Laura Gomez Mera, 1998. "The Tequila Banking Crisis in Argentina," Working Papers 19, Universidad de San Andres, Departamento de Economia, revised Sep 1999.
    10. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, pages 323-347.
    11. Taylor, Alan M., 1998. "Argentina and the world capital market: saving, investment, and international capital mobility in the twentieth century," Journal of Development Economics, Elsevier, pages 147-184.
    12. Yeyati, Eduardo Levy & Schmukler, Sergio L. & Van Horen, Neeltje, 2004. "The price of inconvertible deposits: the stock market boom during the Argentine crisis," Economics Letters, Elsevier, vol. 83(1), pages 7-13, April.
    13. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich-to-Poor Capital Flows," American Economic Review, American Economic Association, pages 53-58.
    14. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, pages 1183-1193.
    15. Augusto de la Torre & Eduardo Levy Yeyati & Sergio L. Schmukler, 2003. "Living and Dying with Hard Pegs: The Rise and Fall of Argentina’s Currency Board," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 43-108, January.
    16. Gianni De Nicolo & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System; Good or Bad?," IMF Working Papers 03/146, International Monetary Fund.
    17. Galiani, Sebastian & Levy Yeyati, Eduardo & Schargrodsky, Ernesto, 2003. "Financial dollarization and debt deflation under a currency board," Emerging Markets Review, Elsevier, vol. 4(4), pages 340-367, December.
    18. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, pages 1183-1193.
    19. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 35-54, November.
    20. Gerardo della Paolera & Alan M. Taylor, 2001. "Straining at the Anchor: The Argentine Currency Board and the Search for Macroeconomic Stability, 1880-1935," NBER Books, National Bureau of Economic Research, Inc, number paol01-1.
    21. Federico Sturzenegger & Ernesto Schargrodsky & Sebastian Galiani & Paul Gertler, 2003. "The Costs and Benefits of Privatization in Argentina: A Microeconomic Analysis," Research Department Publications 3148, Inter-American Development Bank, Research Department.
    22. Sebastian Auguste & Kathryn M.E. Dominguez & Herman Kamil & Linda L. Tesar, 2002. "Cross-Border Trading as a Mechanism for Capital Flight: ADRs and the Argentine Crisis," William Davidson Institute Working Papers Series 513, William Davidson Institute at the University of Michigan.
    23. Francois J. Gurtner, 2004. "Why Did Argentina's Currency Board Collapse?," The World Economy, Wiley Blackwell, vol. 27(5), pages 679-697, May.
    24. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
    25. Edwards, Sebastian, 2002. "The great exchange rate debate after Argentina," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 237-252, December.
    26. Justin M. Dubas & Byung-Joo Lee & Nelson C. Mark, 2005. "Effective Exchange Rate Classifications and Growth," NBER Working Papers 11272, National Bureau of Economic Research, Inc.
    27. Michael Mussa, 2002. "Argentina and the Fund: From Triumph to Tragedy," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa67, February.
    28. Ricardo J. Caballero & Arvind Krishnamurthy, 2003. "Excessive Dollar Debt: Financial Development and Underinsurance," Journal of Finance, American Finance Association, vol. 58(2), pages 867-894, April.
    29. Cavallo, Domingo F & Cottani, Joaquin A, 1997. "Argentina's Convertibility Plan and the IMF," American Economic Review, American Economic Association, pages 17-22.
    30. Feldstein, Martin, 2002. "Argentina's Fall: Lessons from the Latest Financial Crisis," Scholarly Articles 2959849, Harvard University Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," NBER Working Papers 14691, National Bureau of Economic Research, Inc.
    2. Todd Keister & Huberto M. Ennis, 2007. "Commitment and Equilibrium Bank Runs," 2007 Meeting Papers 509, Society for Economic Dynamics.
    3. Maltritz, Dominik & Eichler, Stefan, 2010. "Currency crisis prediction using ADR market data: An options-based approach," International Journal of Forecasting, Elsevier, vol. 26(4), pages 858-884, October.
    4. repec:eee:ecmode:v:65:y:2017:i:c:p:18-29 is not listed on IDEAS
    5. Gopal K. Basak & Pranab Kumar Das & Allena Rohit, 2016. "A Mathematical Model of Foreign Capital Inflow," Papers 1603.02438, arXiv.org, revised May 2017.
    6. Agarwal, Sumit & Chomsisengphet, Souphala & Hassler, Olivier, 2005. "The impact of the 2001 financial crisis and the economic policy responses on the Argentine mortgage market," Journal of Housing Economics, Elsevier, vol. 14(3), pages 242-270, September.
    7. Neil R. Ericsson & Steven B. Kamin, 2008. "Constructive data mining: modeling Argentine broad money demand," International Finance Discussion Papers 943, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    JEL classification:

    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • F3 - International Economics - - International Finance
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:0156. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: () or (Joanne Lustig). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.