Conjectures on why a devaluation did not cure Argentina
Many experts, policymakers, and journalists had been enthusiastically advising Argentina to abandon the currency board arrangement that had been in place since 1991, on the grounds that it was choking its economy. They were disappointed when Argentinas attempt to devalue just a little ended up in...
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| Formato: | Artículo científico |
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Universidad Central de Venezuela
2003
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| Acceso en línea: | http://www.redalyc.org/articulo.oa?id=36490102 http://biblioteca.clacso.edu.ar/gsdl/cgi-bin/library.cgi?a=d&c=ve/ve-004&d=36490102oai |
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| Sumario: | Many experts, policymakers, and journalists had been enthusiastically advising Argentina to abandon the currency board arrangement that had been in place since 1991, on the grounds that it was choking its economy. They were disappointed when Argentinas attempt to devalue just a little ended up in a collapse of its currency and real GDP. We argue that the reason why the devaluation drug didnt cure Argentina is because the doctors who recommended it overlooked that the perfect information conditions required for the medication to work properly were not met by that country. We propose an alternative diagnosis, according to which the attempt to devalue just a little ends up in higher depreciation and inflation rates than originally intended. This prediction, consistent with the evidence for Argentina, suggests that non-state contingent (rigid,) monetary regimes, such as a currency board or outright dollarization, might dominate in a welfare sense, by virtue of a transparency-inducing feature, state-contingent (flexible) policies in countries like Argentina, where economic agents are unable to satisfactorily monitor the policymakers actions, as well as the underlying decision process. |
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