Tango with the Gringo: the Hard Peg and Real Misalignment in Argentina
Between 1990 and 2001 the Argentine peso appreciated by 80 percent in real terms, and its overvaluation has been singled out as one of the main suspects in the debate on the causes of the Argentina collapse of late 2001. This paper assesses the deg...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/06/4980119/tango-gringo-hard-peg-real-misalignment-argentina http://hdl.handle.net/10986/14004 |
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okr-10986-140042021-04-23T14:03:21Z Tango with the Gringo: the Hard Peg and Real Misalignment in Argentina Alberola, Enrique López, Humberto Servén, Luis ADJUSTMENT PROGRAMS ALLOCATION OF RESOURCES ARGENTINE PESO ASSETS BALANCE OF PAYMENTS BASKET OF GOODS BENCHMARK BILATERAL TRADE BRAZILIAN REAL CAPITAL ACCOUNT CAPITAL FLOWS COMPETITIVENESS CONSUMER PRICE INDEX CONVERTIBILITY CPI CURRENCY BOARD CURRENT ACCOUNT CURRENT ACCOUNT BALANCE DEFLATION DEMOGRAPHICS DEVALUATION ECONOMISTS ELASTICITY EMPIRICAL EVIDENCE EQUILIBRIUM EURO EXCHANGE MARKET DEVELOPMENTS EXCHANGE RATE APPRECIATION EXCHANGE RATE DETERMINATION EXCHANGE RATE POLICY EXCHANGE RATES FINANCIAL CRISIS FINANCIAL DOLLARIZATION FINANCIAL MARKETS FINANCIAL SYSTEM FOREIGN CURRENCY GNP INCOME INCOME ELASTICITY INCOME ELASTICITY OF DEMAND INEFFICIENCY INFLATION INTEREST RATE LABOR PRODUCTIVITY MACROECONOMIC CONSEQUENCES MARGINAL PRODUCT NET INCOME NOMINAL EXCHANGE RATE NOMINAL STABILITY NUMERAIRE OUTPUT OVERVALUATION PESOS POLICY RESEARCH PRICE ADJUSTMENT PRICE LEVELS PRODUCTION TECHNOLOGY PRODUCTIVITY PRODUCTIVITY GROWTH PRODUCTIVITY INCREASES PURCHASING POWER PURCHASING POWER PARITY REAL APPRECIATION REAL EXCHANGE REAL EXCHANGE RATE REAL EXCHANGE RATES REAL TERMS RELATIVE PRICE RELATIVE PRICES STABILIZATION STRUCTURAL REFORMS TERMS OF TRADE TRADABLE GOODS TRADE BALANCE UNDERVALUATION VALUE OF MONEY WAGES WEALTH WHOLESALE PRICE INDEX EXCHANGE RATE INFLATION LEVELS MACROECONOMICS INCOME PRODUCTIVITY TRADING ARRANGEMENTS INTERNAL EQUITY LABOR FOREIGN ASSETS GROSS NATIONAL PRODUCT BALANCE OF PAYMENTS Between 1990 and 2001 the Argentine peso appreciated by 80 percent in real terms, and its overvaluation has been singled out as one of the main suspects in the debate on the causes of the Argentina collapse of late 2001. This paper assesses the degree of real misalignment in Argentina over the Convertibility period using a model in which the equilibrium real exchange rate is defined as the value consistent with (i) a balance of payments position where any current account imbalance is financed by a sustainable flow of international capital (external equilibrium), and (ii) traded/nontraded sector productivity differentials (internal equilibrium). Empirical implementation of the model suggests that the initial real appreciation of the peso, between 1990 and 1993, was consistent with the productivity increases that Argentina enjoyed following the stabilization of the economy after the hyperinflation of the late 1980s. But after 1996 a widening gap opened between the observed real exchange rate and that consistent with a sustainable net foreign asset position. Our estimates indicate that in 2001 the peso was overvalued by over 50 percent. The model allows us to assess how much of the overvaluation resulted from Argentina's inadequate choice of anchor currency and how much from a divergence of fundamentals between the U.S. and Argentina, ultimately due to the maintenance of policies inconsistent with the peg. We find that both factors played a role in the overvaluation accumulated between 1977 and 2001 that preceded the collapse of the Convertibility regime. 2013-06-19T16:14:35Z 2013-06-19T16:14:35Z 2004-06 http://documents.worldbank.org/curated/en/2004/06/4980119/tango-gringo-hard-peg-real-misalignment-argentina http://hdl.handle.net/10986/14004 English en_US Policy Research Working Paper;No.3322 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research Latin America & Caribbean Latin America |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ADJUSTMENT PROGRAMS ALLOCATION OF RESOURCES ARGENTINE PESO ASSETS BALANCE OF PAYMENTS BASKET OF GOODS BENCHMARK BILATERAL TRADE BRAZILIAN REAL CAPITAL ACCOUNT CAPITAL FLOWS COMPETITIVENESS CONSUMER PRICE INDEX CONVERTIBILITY CPI CURRENCY BOARD CURRENT ACCOUNT CURRENT ACCOUNT BALANCE DEFLATION DEMOGRAPHICS DEVALUATION ECONOMISTS ELASTICITY EMPIRICAL EVIDENCE EQUILIBRIUM EURO EXCHANGE MARKET DEVELOPMENTS EXCHANGE RATE APPRECIATION EXCHANGE RATE DETERMINATION EXCHANGE RATE POLICY EXCHANGE RATES FINANCIAL CRISIS FINANCIAL DOLLARIZATION FINANCIAL MARKETS FINANCIAL SYSTEM FOREIGN CURRENCY GNP INCOME INCOME ELASTICITY INCOME ELASTICITY OF DEMAND INEFFICIENCY INFLATION INTEREST RATE LABOR PRODUCTIVITY MACROECONOMIC CONSEQUENCES MARGINAL PRODUCT NET INCOME NOMINAL EXCHANGE RATE NOMINAL STABILITY NUMERAIRE OUTPUT OVERVALUATION PESOS POLICY RESEARCH PRICE ADJUSTMENT PRICE LEVELS PRODUCTION TECHNOLOGY PRODUCTIVITY PRODUCTIVITY GROWTH PRODUCTIVITY INCREASES PURCHASING POWER PURCHASING POWER PARITY REAL APPRECIATION REAL EXCHANGE REAL EXCHANGE RATE REAL EXCHANGE RATES REAL TERMS RELATIVE PRICE RELATIVE PRICES STABILIZATION STRUCTURAL REFORMS TERMS OF TRADE TRADABLE GOODS TRADE BALANCE UNDERVALUATION VALUE OF MONEY WAGES WEALTH WHOLESALE PRICE INDEX EXCHANGE RATE INFLATION LEVELS MACROECONOMICS INCOME PRODUCTIVITY TRADING ARRANGEMENTS INTERNAL EQUITY LABOR FOREIGN ASSETS GROSS NATIONAL PRODUCT BALANCE OF PAYMENTS |
| spellingShingle |
ADJUSTMENT PROGRAMS ALLOCATION OF RESOURCES ARGENTINE PESO ASSETS BALANCE OF PAYMENTS BASKET OF GOODS BENCHMARK BILATERAL TRADE BRAZILIAN REAL CAPITAL ACCOUNT CAPITAL FLOWS COMPETITIVENESS CONSUMER PRICE INDEX CONVERTIBILITY CPI CURRENCY BOARD CURRENT ACCOUNT CURRENT ACCOUNT BALANCE DEFLATION DEMOGRAPHICS DEVALUATION ECONOMISTS ELASTICITY EMPIRICAL EVIDENCE EQUILIBRIUM EURO EXCHANGE MARKET DEVELOPMENTS EXCHANGE RATE APPRECIATION EXCHANGE RATE DETERMINATION EXCHANGE RATE POLICY EXCHANGE RATES FINANCIAL CRISIS FINANCIAL DOLLARIZATION FINANCIAL MARKETS FINANCIAL SYSTEM FOREIGN CURRENCY GNP INCOME INCOME ELASTICITY INCOME ELASTICITY OF DEMAND INEFFICIENCY INFLATION INTEREST RATE LABOR PRODUCTIVITY MACROECONOMIC CONSEQUENCES MARGINAL PRODUCT NET INCOME NOMINAL EXCHANGE RATE NOMINAL STABILITY NUMERAIRE OUTPUT OVERVALUATION PESOS POLICY RESEARCH PRICE ADJUSTMENT PRICE LEVELS PRODUCTION TECHNOLOGY PRODUCTIVITY PRODUCTIVITY GROWTH PRODUCTIVITY INCREASES PURCHASING POWER PURCHASING POWER PARITY REAL APPRECIATION REAL EXCHANGE REAL EXCHANGE RATE REAL EXCHANGE RATES REAL TERMS RELATIVE PRICE RELATIVE PRICES STABILIZATION STRUCTURAL REFORMS TERMS OF TRADE TRADABLE GOODS TRADE BALANCE UNDERVALUATION VALUE OF MONEY WAGES WEALTH WHOLESALE PRICE INDEX EXCHANGE RATE INFLATION LEVELS MACROECONOMICS INCOME PRODUCTIVITY TRADING ARRANGEMENTS INTERNAL EQUITY LABOR FOREIGN ASSETS GROSS NATIONAL PRODUCT BALANCE OF PAYMENTS Alberola, Enrique López, Humberto Servén, Luis Tango with the Gringo: the Hard Peg and Real Misalignment in Argentina |
| geographic_facet |
Latin America & Caribbean Latin America |
| relation |
Policy Research Working Paper;No.3322 |
| description |
Between 1990 and 2001 the Argentine peso
appreciated by 80 percent in real terms, and its
overvaluation has been singled out as one of the main
suspects in the debate on the causes of the Argentina
collapse of late 2001. This paper assesses the degree of
real misalignment in Argentina over the Convertibility
period using a model in which the equilibrium real exchange
rate is defined as the value consistent with (i) a balance
of payments position where any current account imbalance is
financed by a sustainable flow of international capital
(external equilibrium), and (ii) traded/nontraded sector
productivity differentials (internal equilibrium). Empirical
implementation of the model suggests that the initial real
appreciation of the peso, between 1990 and 1993, was
consistent with the productivity increases that Argentina
enjoyed following the stabilization of the economy after the
hyperinflation of the late 1980s. But after 1996 a widening
gap opened between the observed real exchange rate and that
consistent with a sustainable net foreign asset position.
Our estimates indicate that in 2001 the peso was overvalued
by over 50 percent. The model allows us to assess how much
of the overvaluation resulted from Argentina's
inadequate choice of anchor currency and how much from a
divergence of fundamentals between the U.S. and Argentina,
ultimately due to the maintenance of policies inconsistent
with the peg. We find that both factors played a role in the
overvaluation accumulated between 1977 and 2001 that
preceded the collapse of the Convertibility regime. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Alberola, Enrique López, Humberto Servén, Luis |
| author_facet |
Alberola, Enrique López, Humberto Servén, Luis |
| author_sort |
Alberola, Enrique |
| title |
Tango with the Gringo: the Hard Peg and Real Misalignment in Argentina |
| title_short |
Tango with the Gringo: the Hard Peg and Real Misalignment in Argentina |
| title_full |
Tango with the Gringo: the Hard Peg and Real Misalignment in Argentina |
| title_fullStr |
Tango with the Gringo: the Hard Peg and Real Misalignment in Argentina |
| title_full_unstemmed |
Tango with the Gringo: the Hard Peg and Real Misalignment in Argentina |
| title_sort |
tango with the gringo: the hard peg and real misalignment in argentina |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2004/06/4980119/tango-gringo-hard-peg-real-misalignment-argentina http://hdl.handle.net/10986/14004 |
| _version_ |
1764430346446700544 |