Working papers

Stabilization programs in chronic-inflation countries: Evidence from Latin America Planes de estabilización. With Martín Rapetti and Joaquín Waldman (Spanish version).

Chronic inflation has affected Latin America for decades, leading to a large number of disinflation/stabilization attempts. In this article, we develop a novel database with 46 stabilization programs in 13 Latin American countries between 1970-2020. We classify them into three categories: failures, temporary stabilizations, and lasting stabilizations. We study which factors have contributed to lasting disinflations. Our main findings are: 1) programs have failed to stabilize very often; 2) the nominal exchange rate (NER) acts as a de facto anchor in the stabilization process, decelerating faster than prices, even when it is not the instrumental anchor chosen by the authorities; this means that the real exchange rate (RER) always appreciates during stabilization; 3) the pre-existence of multiple exchange rates has not prevented lasting stabilization; 4) lasting stabilizations begin with stronger fiscal and balance of payments (BoP) positions; 5) lasting stabilizations are preceded by BoP and fiscal adjustments; 6) lasting stabilizations keep fiscal accounts balanced for several years after the program is launched; 7) stabilizations boosts economic growth in the short run; 8) the current account of the BoP worsens during the stabilization process; 9) temporary stabilizations are interrupted by NER and RER depreciations; and 10) many stabilization experiences end up in currency, financial and sovereign debt crises. We offer a theoretical explanation to rationalize them.

Real Exchange Rate and Import Substitution Episodes: Evidence from Argentina 2003-2008 

In this paper, we investigate the impact of the level of the real exchange rate on the boost of sectors that succeed in substituting imports. We take advantage of an excellent quasi-natural experiment provided by the large and long-lasting RER depreciation that occurred in Argentina's post-convertibility period. To this end, we construct an episode detection algorithm that identifies sectors in which imports decreased substantially during this six-year period 2003-2008, controlling for changes in the aggregate demand. Then, we test some of the main transmission mechanisms by which the real exchange rate might affect the performance of the tradable sector that competes with imports. Our main results are threefold. First, we find that labor-intensive sectors showed a higher probability of occurrence of import substitution episodes during 2003-2008. This is in line with our expectations, given that the RER should increase their profitability more in these kinds of sectors. Second, we find that the higher level of the RER increases the probability of an import substitution episode when the sector shares a higher share of capabilities required with sectors in which the country is already internationally competitive. Last, we find complementarities between the sectors with import substitution episodes and those that achieved the status of export surge episodes during the same period (2003-2008). In this sense, and in contrast to the traditional consensus view about import substitution policies, we do not observe any tension between developing sectors for the domestic market and the incentive to export growth when the level of the RER is used to promote the tradable-led growth channel.