International Borrowing and Macroeconomic Performance in Argentina

45 Pages Posted: 21 Jun 2005 Last revised: 11 Jul 2010

See all articles by Kathryn M.E. Dominguez

Kathryn M.E. Dominguez

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; National Bureau of Economic Research (NBER)

Linda L. Tesar

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2005

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.

Suggested Citation

Dominguez, Kathryn M.E. and Tesar, Linda L., International Borrowing and Macroeconomic Performance in Argentina (May 2005). NBER Working Paper No. w11353. Available at SSRN: https://ssrn.com/abstract=727133

Kathryn M.E. Dominguez (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

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Ann Arbor, MI 48109
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HOME PAGE: http://www-personal.umich.edu/~kathrynd/

National Bureau of Economic Research (NBER)

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Linda L. Tesar

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-763-2254 (Phone)
734-764-2769 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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