A counterfactual analysis of the Argentinian monetary transformation in 2002

A hard peg restored economic stability in Argentina during the nineties but made it also vulnerable to real shocks in so far as the economy was highly dollarized. A devaluation in 1998 in Brasil, its main partner, damaged the Argentinian competitiveness and resulted in a fall in export demand. There was a need for a real adjustment but removing the peg would have implied large balance sheet effects and raised serious financial issues. This article endeavours to learn a lesson about the aftermath of hard peg regime from the Argentinian experience. It is based on a dynamic macroeconomic model to assess the impact of three scenarios, already suggested in the literature. Two hypothetical, a floating regime and dollarization and one which was actually implemented in 2002, the pesification of the whole economy. The simulations suggest that pesification was the only scenario with unambiguous expansionary effects.