Debt dollarisation poses dilemmas in Argentina

2016 ◽  
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Interest Rates ◽  
Policy Support ◽  
Economic Downturn ◽  
External Shocks ◽  
Content Type ◽  
The Exchange Rate ◽  
Monetary And Fiscal Policy

Subject Monetary, fiscal and debt concerns. Significance After falling to nearly 16 pesos/dollar in early March, the exchange rate stabilised, mainly due to rising domestic interest rates, which climbed to a peak of 38.0%. Monetary tightening and the deepening of the economic downturn helped to bring down inflation, which is expected to reach a monthly rate of 1.5% in the last quarter. Lower interest rates and decreasing inflation are needed to drive an economic rebound, key to the government's prospects in October 2017 mid-term elections. Impacts Dollarisation of financial liabilities will leave the economy more vulnerable to negative external shocks. The economy may show further decline in third-quarter figures. Moderating inflation and monetary and fiscal policy support are expected to help turn growth positive in 2017.

Mobile Capital, Domestic Institutions, and Electorally Induced Monetary and Fiscal Policy

2000 ◽  
Vol 94 (2) ◽  
pp. 323-346 ◽  
Author(s):  
William Roberts Clark ◽  
Mark Hallerberg
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Central Bank ◽  
Open Economy ◽  
Capital Mobility ◽  
Formal Model ◽  
Central Bank Independence ◽  
Mobile Capital ◽  
The Exchange Rate ◽  
Monetary And Fiscal Policy

The literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics: Capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible. Similarly, examinations of the electoral determinants of monetary and fiscal policy typically ignore international pressures altogether. We develop a formal model to analyze the interaction between fiscal and monetary policymakers under various exchange rate regimes and the degrees of central bank independence. We test the model using data from OECD countries. We find evidence that preelectoral monetary expansions occur only when the exchange rate is flexible and central bank independence is low; preelectoral fiscal expansions occur when the exchange rate is fixed. We then explore the implications of our model for arguments that emphasize the partisan sources of macroeconomic policy and for the conduct of fiscal policy after economic and monetary union in Europe.

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