NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Finanial Policy and Speculative Runs with a Crawling Peg: Argentina 1979-1981

Robert E. Cumby, Sweder van Wijnbergen

NBER Working Paper No. 2376
Issued in August 1987
NBER Program(s):   ITI   IFM

In this paper we present a model of a balance-of-payments crisis and use it to examine the Argentine experiment with a crawling peg between December 1978 and February 1981. The approach taken allows us to examine the evolution of a crisis when the collapse is not a perfectly-foreseen event. The implementation of the model yields plausible values of the one-month ahead probabilities of a collapse of the crawling peg. The probabilities exhibit a sharp increase in the middle of 1980 and indicate a significant loss of credibility throughout the remainder of the year. The results suggest that viability of an exchange rate regime depends strongly on the domestic credit policy followed by the authorities. If this policy is not consistent with the exchange rate policy pursued by the authorities, confidence in the exchange rate policy is undermined.

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Document Object Identifier (DOI): 10.3386/w2376

Published: Journal of International Economics, vol. 27, no.1/2, pp. 111-127, August 1989.

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