A Counterfactual Analysis of the Argentinian Monetary Transformation in 2002
29 Pages Posted: 1 Dec 2012
Date Written: June 30, 2006
A hard peg restored economic stability in Argentina during the nineties but made it also vulnerable to real shocks in so far as the economy was highly dollarised. A devaluation in 1998 in Brasil, its main partner, damaged the Argentinian competitiveness and resulted in a fall in export demand. There was a need for a real adjustment but removing the peg would have implied large balance sheet effects and raised serious financial issues. This paper endeavours to learn a lesson about the aftermath of hard peg regime from the Argentinian experience. It is based on a dynamic macroeconomic model to assess the impact of three scenarios, already suggested in the literature. Two hypothetical, a floating regime and dollarisation and one which was actually implemented in 2002, the pesi cation of the whole economy. The simulations suggest that pesi cation was the only scenario with unambiguous expansionary effects.
Keywords: balance sheet effects, Argentina, pesification
JEL Classification: E42, E47, F41
Suggested Citation: Suggested Citation