Chapter

Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons

Guillermo A. Calvo, Alejandro Izquierdo and Ernesto Talvi

in Monetary Unions and Hard Pegs

Published in print March 2004 | ISBN: 9780199271405
Published online August 2004 | e-ISBN: 9780191601200 | DOI: http://dx.doi.org/10.1093/0199271402.003.0010
 Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons

Show Summary Details

Preview

Argentina’s vulnerability to Sudden Stops in capital flows provides an alternative explanation for the fall of Argentina’s Convertibility Program. Sudden Stops are typically accompanied by a substantial depreciation of the real exchange rate that wreaks havoc in countries that are heavily dollarized in their liabilities, making otherwise sustainable fiscal and corporate sector positions unsustainable. In particular, we stress that the required change in relative prices is larger the more closed the economy is in terms of its supply of tradable goods. We also provide an explanation for the political maelstrom that ensued after the Sudden Stop triggered by the Russian crisis of 1998.

Keywords: Argentine Convertibility Program; currency mismatch; intermediation crisis; liability dollarization; Sudden Stop

Chapter.  13387 words.  Illustrated.

Subjects: Economic Systems

Full text: subscription required

How to subscribe Recommend to my Librarian

Buy this work at Oxford University Press »

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.