TY  - JOUR
AU  - Calvo,Guillermo A.
AU  - Izquierdo,Alejandro
AU  - Talvi,Ernesto
TI  - Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9828
PY  - 2003
Y2  - July 2003
UR  - http://www.nber.org/papers/w9828
L1  - http://www.nber.org/papers/w9828.pdf
N1  - Author contact info:
Guillermo A. Calvo
Columbia University
School of International and Public Affairs
420 West 118th St, Room 1303B
MC3332
New York, NY 10027
Tel: 212/854-4264
E-Mail: gc2286@columbia.edu

Alejandro Izquierdo
Inter-American Development Bank
1300 New York Ave, N. W.
Washington, D. C., 20577
E-Mail: alejandroi@iadb.org

Ernesto Talvi
AB  - We offer an alternative explanation for the fall of Argentina's Convertibility Program based on the country's vulnerability to Sudden Stops in capital flows. Sudden Stops are typically accompanied by a substantial increase in the real exchange rate that breaks havoc in countries that are heavily dollarized in their liabilities, turning otherwise sustainable fiscal and corporate sector positions into unsustainable ones. In particular, we stress that the required change in relative prices is larger the more closed an economy is in terms of its supply of tradable goods. By contrasting Argentina's performance relative to other Latin American countries that were also subject to the Sudden Stop triggered by the Russian crisis of 1998, we identify key vulnerability indicators that separated Argentina from its piers. We also provide an explanation for the political maelstrom that ensued after the Sudden Stop, based on a War of Attrition argument related to the wealth redistribution conflict triggered by the Sudden Stop and fiscal collapse. This framework also provides elements to rationalize the banking crisis that accompanied the fall of Convertibility.
ER  -