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Financial shocks and macroeconomic policies during the Argentine crisis of 2001-2002

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  • Jose MOURELLE

    () (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Banco Central del Urugay)

Abstract

The objective of this paper is analyse the determinants of the Argentine crisis of 2001-2002. In particular we analyse the role of macroeconomic policies during the crisis. The crisis coincided with a sudden stop of capital flows.We use a VAR model to better understand the shocks and mechanisms by which the crisis propagated throughout the economy. We find evidence that Argentine crisis was the consequence of an external financial shock, expressed by the increase in sovereign spread, amplified by local vulnerabilities. Fiscal policy, that faced financial restrictions, was tightened and the economy suffered additional contractionary fiscal shocks. The recession was exacerbated by a real exchange rate shock, that was appreciated. This result is the consequence of the rigid fixed exchange rate used by Argentina and the lack of coordination inside the Mercosur agreement where Brazil devaluate while Argentina not. Our analysis suggests the convenience of generate an institutional framework that allows a flexible use of fiscal and exchange rate policies to confront with adverse external shocks.

Suggested Citation

  • Jose MOURELLE, 2010. "Financial shocks and macroeconomic policies during the Argentine crisis of 2001-2002," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2010024
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2010024.pdf
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    Cited by:

    1. María Lorena Mari del Cristo & Marta Gómez-Puig, 2014. "Dollarization and the relationship between EMBI and fundamentals Latin American countries," Working Papers 14-05, Asociación Española de Economía y Finanzas Internacionales.
    2. Lorena Mari del Cristo & Marta Gómez-Puig, 2014. "Dollarization and the relationship between EMBI and fundamentals in Latin American countries," Working Papers 2014-02, Universitat de Barcelona, UB Riskcenter.

    More about this item

    Keywords

    crisis; Argentina; country risk; fixed exchange rates; procyclical fiscal policy;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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