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What Can We Learn from the Current Crisis in Argentina?

Staff Report 318 | Published July 1, 2003

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Timothy J. Kehoe Consultant, University of Minnesota, and National Bureau of Economic Research
What Can We Learn from the Current Crisis in Argentina?


Currently, Argentina is experiencing what the government describes as a “great depression.” Using the “Great Depressions” methodology developed by Cole and Ohanian (1999) and Kehoe and Prescott (2002), we find that the primary determinants of both the boom in Argentina in the 1990s and the subsequent depression were changes in productivity, rather than changes in factor inputs. The timing of events links the boom to the currency-board-like Convertibility Plan and the crisis to its collapse. To gain credibility, the Argentine government took measures to make abandoning the plan more costly. Because the government was unable to enforce fiscal discipline, however, these increased costs failed to make the plan more credible and instead made the crisis far worse when it failed.

Published in: _Scottish Journal of Political Economy_ (Vol. 50, No. 5, November 2003, pp. 609-633)