Finanial Policy and Speculative Runs with a Crawling Peg: Argentina 1979-1981

26 Pages Posted: 6 Apr 2007 Last revised: 1 Jul 2010

See all articles by Robert E. Cumby

Robert E. Cumby

Georgetown University - Department of Economics; National Bureau of Economic Research (NBER)

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: September 1987

Abstract

In this paper we present a model of a balance-of-payments crisis and use it to examine the Argentine experiment with a crawling peg between December 1978 and February 1981. The approach taken allows us to examine the evolution of a crisis when the collapse is not a perfectly-foreseen event. The implementation of the model yields plausible values of the one-month ahead probabilities of a collapse of the crawling peg. The probabilities exhibit a sharp increase in the middle of 1980 and indicate a significant loss of credibility throughout the remainder of the year. The results suggest that viability of an exchange rate regime depends strongly on the domestic credit policy followed by the authorities. If this policy is not consistent with the exchange rate policy pursued by the authorities, confidence in the exchange rate policy is undermined.

Suggested Citation

Cumby, Robert E. and van Wijnbergen, Sweder, Finanial Policy and Speculative Runs with a Crawling Peg: Argentina 1979-1981 (September 1987). NBER Working Paper No. w2376. Available at SSRN: https://ssrn.com/abstract=977414

Robert E. Cumby (Contact Author)

Georgetown University - Department of Economics ( email )

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Sweder Van Wijnbergen

Universiteit van Amsterdam ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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