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Credit crunch and Keynesian contraction: Argentina in crisis
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Miller, Marcus, 1941-, García Fronti, Javier I. and Zhang, Lei, Dr. (2005) Credit crunch and Keynesian contraction: Argentina in crisis. Discussion Paper. Centre for Economic Policy Research (Great Britain), London.
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Abstract
The Argentine convertibility regime, where the peso was fixed at parity with the US dollar, ended with a ‘twin crisis’ – a tripling in the price of a dollar and a protracted closure of the entire banking system – accompanied by an economic contraction so severe that it is often referred to as ‘Nuestra gran depresión’. But the government's attempt to imitate President Roosevelt by pesifying dollar loan contracts (while simultaneously protecting dollar depositors) had the effect of destroying bank net worth in the absence of credible compensation. To analyse the macroeconomic effects of credit crunch and currency collapse (and of policies to mitigate them), we turn to a model of crisis, specifically that of Aghion, Bacchetta & Banerjee (2000). Our account, however, combines the supply contraction cause by balance sheet effect with a Keynesian demand contraction due to a domestic credit crunch, exacerbated by unsuccessful resolution of the banking crisis. The latter is analysed as a game of political economy played between government and banks about who pays for the banking crisis induced by default and asymmetric pesification.
| Item Type: | Working or Discussion Paper (Discussion Paper) |
|---|---|
| Subjects: | F History United States, Canada, Latin America > F1201 Latin America (General) H Social Sciences > HJ Public Finance |
| Divisions: | Faculty of Social Sciences > Economics |
| Library of Congress Subject Headings (LCSH): | Debts, Public -- Argentina, Money -- Argentina, Keynesian economics, Recessions -- Argentina, Argentina -- Economic conditions -- 1983- |
| Series Name: | Discussion paper (Centre for Economic Policy Research (Great Britain)) |
| Publisher: | Centre for Economic Policy Research (Great Britain) |
| Place of Publication: | London |
| Date: | January 2005 |
| Number: | No.488 |
| Number of Pages: | 46 |
| Status: | Not Peer Reviewed |
| Access rights to Published version: | Open Access |
| Funder: | Economic and Social Research Council (Great Britain) (ESRC) |
| Grant number: | RES-051-27-0125 (ESRC) |
| URI: | http://wrap.warwick.ac.uk/id/eprint/1693 |
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