The Argentinean Currency Crisis: A Markov-Switching Model Estimation

Patricia Alvarez-Plata and Mechthild Schrooten

No 348, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Despite the fact that Argentina has been suffering from a recession for years, the timing and severity of the recent currency crisis surprised most observers. This paper analyzes the role of fundamentals and self-fulfilling speculation in the Argentinean crisis. Arguing within a theoretical model of a fixed exchange rate system that allows for multiple equilibria, we show that the crisis, while being associated with weak and deteriorating fundamentals, cannot be explained by these macroeconomic factors alone. Estimating a univariate Markovswitching model, this paper shows that shifts in agents' beliefs did indeed also play a crucial role.

Keywords: Currency crises; Self-fulfilling speculation; Markov-switching models (search for similar items in EconPapers)
JEL-codes: C22 F31 F36 (search for similar items in EconPapers)
Pages: 18 p.
Date: 2003
New Economics Papers: this item is included in nep-cba and nep-ifn
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: THE ARGENTINEAN CURRENCY CRISIS: A MARKOV‐SWITCHING MODEL ESTIMATION (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp348

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