The Exchange Rate and Inflation in Argentina: A Classical Critique of Orthodox and Heterodox Policy Prescriptions

Ariel Dvoskin and German Feldman

Forum for Social Economics, 2010, vol. 39, issue 2, 145-169

Abstract: In this paper we present an alternative framework to neoclassical theory of international trade and exchange rate determination. Our model, inspired in the classical tradition, provides support for the assertion that an exchange rate policy aiming to improve national competitiveness and to bring about a sustained trade surplus is a viable option. In fact, the success of this strategy does not depend on the effectiveness of monetary sterilization —as many argentinean heterodox authors claim— but on the ability to overcome the boundaries imposed by the evolution of the domestic wage rate and the potential emergence of competitive devaluations. In the particular case of Argentina, the introduction of export taxes on land-intensive commodities, in which the economy has absolute advantages, brings an additional policy tool that can make both the exchange rate target and the workers claims consistent.

Date: 2010
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DOI: 10.1007/s12143-008-9030-9

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