Argentina: Cavallo, galope para o desastre?

This paper examines the latest stabilization effort in Argentina, the Cavallo Plan. The analytical framework is the tradeable-non tradeable textbook model, extended to the effect of real wages on aggregate demand. A Phillips-curve description of inflation is also included. It is shown that, by moving from a floating to a fixed-exchange rate regime, the ensuing trade deficit may lead to a classical run on reserves, forcing the re-establishment of floating exchange rates. In the process, the economy will go through a complete economic cycle, returning to inflation