Abstract

We develop a novel balance-of-payments (BoP) classification to distinguish reserves accumulated via public external borrowing (a precautionary “self-insurance” motive) from those built up through private capital inflows (sterilized “leaning-against-the-wind” of capital flows, or LAW interventions) to estimate the impact of reserve changes on sovereign spreads and financial stress according to their source of finance. We find that increases in reserves funded by private inflows significantly compress sovereign credit spreads and reduce the probability of a financial stress episode, whereas reserves changes due to external debt issuance have a much weaker or a statistically insignificant effect.

Abstract

Inflation in Argentina over the past few years has been high and volatile, making it increasingly important to forecast it accurately in the short term. This paper compares the predictive power of monthly inflation projections made by economic consultants surveyed by the Central Bank through the Market Expectations Survey (REM) and implicit inflation (break-even) in financial markets, derived from Nelson-Siegel-Svensson models on zero-coupon curves. The results suggest that REM expectations were a better reference for forecasting the evolution of inflation in Argentina in the short term during 2020-2023.

Abstract

In economies with large exchange rate fluctuations and macroeconomic instability, currency substitution is a highly important phenomenon. The Argentine case is studied through the inclusion of a ratchet variable, which accounts for the hysteresis effect—irreversibility in the currency substitution process—for 2003-2019. To that end, an ARDL (Autoregressive Distributed Lag) model was used, where it was found that the hysteresis effect is persistent in the long run. This has implications to conduct monetary policy and regarding the stability of the demand for money.