University of Northern British Columbia

Stabilization and Post-stabilization under the Convertibility Regime in the 1990s: Argentine Experience

Email address: wangb@unbc.ca

Keywords: CGE Model, Price-exchange rate spiral, Interest rate adjustment mechanism, Convertibility Law based stabilization program

JEL Classifications: D58, E10

Abstract:
After experiencing chronic high inflation and economic instability for more than two decades, the government of Argentina began a new stabilization effort by introducing the Convertibility Law based stabilization program on April 1, 1991. Following this effort, the economic performance dramatically improved during 1991?1994. However, the positive results did not last for too long. Economic performances in terms of GDP growth, employment, and the balance of trade worsened from the beginning of 1995. This study is an attempt to investigate some aspects of the Argentine economic performance during the Convertibility regime. A computable general equilibrium (CGE) model is constructed for Argentina and several simulation experiments are conducted using this model. The theoretical predictions and the results of simulation experiments together suggest that the Convertibility Law based stabilization program is very successful in arresting high inflation, eliminating the budget deficit, and stabilizing the economy, but it is not free from negative effects, such as trade deficits, money shortage, and high interest rates. Removing these negative effects, even partially, requires a set of complementary policies that are implemented simultaneously.

PDF file of paper: wang_baotai.pdf

Session: Empirical Finance

Time: Sunday, 8 July, 2:15pm - 3:45pm

Room: B