The aim of this paper is to investigate whether the 2002 crisis in Argentina was, at least to some extent, self-fulfilling. The theoretical basis we refer to is the so-called “second-generation” models. We use a Markov-switching model that allows us to empirically estimate the role played by fundamentals and/or shifts in devaluation expectations. Our results suggest that shifts in expectations have induced the crisis. However, because deteriorating fundamentals are also significant, we conclude that the collapse of the peg has been partly driven by adverse fundamentals and that abrupt shifts in devaluation expectations have forced a premature exit.

Are currency crises self-fulfilling? The case of Argentina

NAPOLITANO, Oreste
2005

Abstract

The aim of this paper is to investigate whether the 2002 crisis in Argentina was, at least to some extent, self-fulfilling. The theoretical basis we refer to is the so-called “second-generation” models. We use a Markov-switching model that allows us to empirically estimate the role played by fundamentals and/or shifts in devaluation expectations. Our results suggest that shifts in expectations have induced the crisis. However, because deteriorating fundamentals are also significant, we conclude that the collapse of the peg has been partly driven by adverse fundamentals and that abrupt shifts in devaluation expectations have forced a premature exit.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11367/27979
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