Sovereign default by Argentina: 'slow motion train crash' or self-fulfilling crisis?
García Fronti, Javier I., Miller, Marcus and Zhang, Lei (2002) Sovereign default by Argentina: 'slow motion train crash' or self-fulfilling crisis? Discussion Paper. London: Centre for Economic Policy Research (Great Britain). Discussion paper (Centre for Economic Policy Research (Great Britain)) (No.339).
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To check hyperinflation, Argentina pegged the peso at one US dollar in 1991. This stopped inflation in its tracks: but, with the rise of the dollar against the Euro and the substantial devaluation of the Brazilian real, the peso became increasingly over-valued leading to a significant country-risk premium on Argentine dollar liabilities as devaluation with ‘pesification’ was anticipated. Here, we apply the Ozkan and Sutherland (1998) model of over-valuation and currency crisis to analyse three scenarios: (i) that Cavallo unnecessarily delayed devaluation, (ii) that the delay was reasonable, and (iii) Cavallo’s view, that the peg should have been preserved but was destroyed by self-fulfilling panic. In conclusion, we argue that, as the costs associated with devaluation and default are largely determined ex post, so the appropriate interpretation depends on how the crisis is handled.
|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, Devaluation of currency -- Argentina, Currency crises -- 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|
|Official Date:||May 2002|
|Number of Pages:||20|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
|Grant number:||R000239216 (ESRC)|
Calvo, Guillermo (2000). “Capital markets and the exchange rate with special
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