Devaluations were traditionally considered to be expansionary in the short run and have no real long-run effects. Alternatively, some observers in developing countries found that devaluations were contractionary on impact, and that they might foster long-term growth. Using Argentina as a case study, which is convenient due to its long series availability and its subsequent switches in exchange rate regimes, four structural shocks are identified in line with the traditional and alternative views. It is found that devaluations were mostly contractionary, and that real long-run effects were only possible when inflation was either low or moderate. In light of the estimates, a historical revision of Argentinean devaluation episodes from 1854 to 2018 has been carried out.
Purpose This paper aims to estimate the impact of the 2000s commodity boom in the major Latin American economies.
Design/methodology/approach The author used a structural vector autorregresive analysis where the selection of variables is conditional on a New Keynesian Model for a small open economy.
Findings The evidence indicates that the Argentinean nominal exchange rate appreciated less while its output and inflation grew more than those of the other nations when subjected to commodity shocks. These results are interpreted as a more aggressive leaning-against-the-wind intervention by Argentina, probably to avoid the Dutch disease. Although the effects with regard to output were indeed stronger in Argentina, this was only at the expense of higher inflation and volatility suffered during the boom.
Originality/value At the time of the writing of this paper, no work had evaluated Argentinean underperformace to the manner in which its exchange rate policy was handled in comparison with the rest of the region during the boom. This paper intends to fill this gap.
This paper proposes comprehensive measures of the Latin American business cycle that help to infer the expected deepness of recessions, and strength of expansions, as they unfold in real time. These measures are based on the largest country economies in the region by accounting for intrinsic features of real activity, such as comovement, nonlinearities, asymmetries, and are also robust to unprecedented shocks, like the COVID-19 pandemics. The proposed measures provide timely updates on (i) inferences on the state of the regional economy, (ii) the underlying momentum embedded in short-term fluctuations of real activity, and (iii) the quantification of macroeconomic tail risks. We evaluate as well the time-varying effects of U.S. financial conditions on the Latin American economy by employing the proposed measures, and identify periods of persistent international spillovers.
I investigate the causes of the high inflation Argentina experienced from 2007to 2015. To do so, I estimate the potential output and the output gap using the Blanchard-Quah decomposition for this country and compare it to the estimations I obtained for other economies in the region were inflation was kept under control. I find that there are some country specific patterns in Argentina that can explain the high inflation observed during the analyzed years. First of all, Argentinean potential output grew at a slower pace than the rest of the countries, most notably since 2011. Second, there has been in Argentina a positive and increasing output gap since 2007, which was highly correlated with the inflation rate. Last, a comparison between the actual interest rate and the one derived from an ex-post monetary policy rule reveals that monetary policy was too lose in Argentina but that has not been the case in the rest of the countries. The policy implications of these findings are straightforward: Argentina could have reduced inflation by following a monetary rule, just like the rest of the Central Banks in the region seem to have done.
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