Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88018
Authors: 
Izquierdo, Alejandro
Talvi, Ernesto
Calvo, Guillermo A.
Year of Publication: 
2003
Series/Report no.: 
Working Paper, Inter-American Development Bank, Research Department 469
Abstract: 
We offer an alternative explanation for t he fall of Argentina’s Convertibility Program based on the country’s vulnerability to Sudden Stops in capital flows. Sudden Stops are typically accompanied by a substantial increase in the real exchange rate that wreaks havoc in countries that are heavily dollarized in their liabilities, turning otherwise sustainable fiscal and corporate sector positions into unsustainable ones. In particular, we stress that the required change in relative prices is larger the more closed an economy is in terms of its sup ply of tradable goods. By contrasting Argentina’s performance relative to other Latin American countries that were also subject to the Sudden Stop triggered by the Russian crisis of 1998, we identify key vulnerability indicators that separated Argentina from its peers. We also provide an explanation for the political maelstrom that ensued after the Sudden Stop, based on a War of Attrition argument related to the wealth redistribution conflict triggered by the Sudden Stop and fiscal collapse. This framewo rk also provides elements to rationalize the banking crisis that accompanied the fall of Convertibility.
Document Type: 
Working Paper

Files in This Item:
File
Size
169.63 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.