Endogenous money and public foreign debt during the Argentinean Convertibility

Juan Matías De Lucchi
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Juan Matías De Lucchi: CEFID-AR Researcher

Review of Keynesian Economics, 2013, vol. 1, issue 3, 322-346

Abstract: This paper tries to demonstrate that the endogeneity of money in the Argentinean currency board, known as Convertibility, was compatible with the heterodox endogenous money approach. The Argentinean Convertibility was interpreted by the conventional view as a pure case of the Mundell–Fleming model with fixed exchange rate (MFFER). This approach points out that domestic money became 'endogenous' because the central bank loses the ability to determine the monetary policy. However, this last endogenity process has nothing to do with the heterodox endogenous money approach. While the MFFER endogeneity is 'supply-led' (balance of payment effect), the heterodox approach is 'demand-led' (bank credit effect). So, given the structural external constraint (not only due to the historical Argentinean balance of payments constraint, but also increased by the need for backing the monetary base with foreign reserves) the Central Bank of Argentina operated as a lender of last resort to an unsustainable expansion of public foreign indebtedness. The dollar credit rationing to the government was the limit to the central bank's accommodation policy.

Keywords: convertibility; endogenous money; public foreign indebtedness; Argentina (search for similar items in EconPapers)
JEL-codes: E12 E50 F32 F34 F41 H63 (search for similar items in EconPapers)
Date: 2013
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