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International Borrowing and Macroeconomic Performance in Argentina

  • Kathryn M.E. Dominguez

    (University of Michigan and NBER)

  • Linda L. Tesar

    (University of Michigan and NBER)

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’s 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.

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File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers526-550/r532.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 532.

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Length: 45 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:mie:wpaper:532
Contact details of provider: Postal: ANN ARBOR MICHIGAN 48109
Web page: http://fordschool.umich.edu/rsie/

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  1. 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, vol. 57(1), pages 147-184, October.
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  18. 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.
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  27. 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.
  28. 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, May.
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