What Can We Learn from the Current Crisis in Argentina?

Currently, Argentina is experiencing what the government describes as a ‘great depression.’ Using the ‘Great Depressions’ methodology developed by Cole and Ohanian (1999) and Kehoe and Prescott (2002) , we find that the primary determinants of both the boom in Argentina in the 1990s and the subsequent depression were changes in productivity, rather than changes in factor inputs. The timing of events links the boom to the currency‐board‐like Convertibility Plan and the crisis to its collapse. To gain credibility, the Argentine government took measures to make abandoning the plan more costly. Because the government was unable to enforce fiscal discipline, however, these increased costs failed to make the plan more credible and instead made the crisis far worse when it failed.     

An evaluation of the performance of an applied general equilibrium model of the Spanish economy

Summary In 1985–86 the authors were members of a team that constructed a static applied general equilibrium model that was used to analyze the impact on the Spanish economy of the 1986 fiscal reform, which accompanied Spain's entry into the European Community. This paper compares the results obtained to recently published data for 1985–87; we find that the model performed well in predicting the changes in relative prices and resource allocation that actually occurred, particularly if we incorporate exogenous shocks that affected the Spanish economy in 1986. We also analyze the sensitivity of the results to alternative specifications of the labor market and macroeconomic closure rules; we find that the central results are robust.We gratefully acknowledge financial support from NSF Grant SES 89-22036 (Kehoe) and CICYT Grant PB 89 + 0309 (Polo and Sancho). We thank participants in the IIASA Applied General Equilibrium Conference, Laxenburg, Austria, August 1991; the International Trade Workshop at UCLA, March 1992; the Graduate Public Finance Course at the University of Minnesota, Winter 1993; Antonio Gomez Gomez-Plana; and Betsy Caucutt for helpful suggestions. Above all, we wish to thank our colleagues who have worked with us on the MEGA (Model d'Equilibri General Aplicat) Project at the Universitat Autònoma de Barcelona: Antonio Manresa, Pedro Javier Noyola, Jaime Serra-Puche, Cristina Echevarria, Walter Garcia, Ana Laborda, and Xavier Ramirez. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.