Tuesday, June 21, 2011

Argentina, Ecuador and Greece

Well ... not really about Greece, but this paper that has been finally published on Argentina and Ecuador (in the Journal of World-Systems Research) does say something for the euro area countries in trouble.

From the abstract:
The paper draws lessons from the failed Argentine experience with convertibility to highlight the dangers of dollarization in Ecuador. Argentina’s currency peg to the US dollar was successful in reducing inflation but given the overvalued real exchange rate, created burgeoning twin deficits and a chronic dependency on foreign capital. Ecuador too suffers from chronic current account imbalance. In contrast to Argentina, Ecuador seems to be relying on remittance income to close its external financing gap. Though perhaps this model is less unstable than that of relying on foreign capital it is no more sustainable. The paper closes with a realistic critique of this development strategy.

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