Stabilization policies in Argentinaan analysis from the perspective of inflation uncertainty

Abstract

In understanding the Argentinean inflationary experience, one can identify the following economic causes: (i) the structure of the economy, (ii) the fiscal deficit and (iii) the specific characteristics of the implemented stabilization programs. From 1948 until 2005, all administrations had to purse at least one stabilization program. This paper identifies (i) the timing of the implemented programs, (ii) the main instruments used to achieve price stability and (iii) the consequences these programs had on the evolution of inflation uncertainty. The objective is to test whether inflation uncertainty rose as the inconsistencies of the stabilization programs became apparent and, thus, the programs came to an end. The estimation of the unobservable inflation uncertainty is based on running Markov- Switching Models. This class of models can identify heteroskedastic behaviors as well as changes of the level of inflation for different states of the economy. In this paper the monthly inflation level defines the states. The initial success of the different programs tended to disappear rapidly, therefore reducing the confidence of economic agents.