Devaluation with contract redenomination in Argentina |
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Authors: | Charles W Calomiris |
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Institution: | (1) Columbia Business School, 601 Uris Hall, Broadway 3022, New York, NY 10027, USA |
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Abstract: | This study offers the first empirical microeconomic analysis of the effectiveness of dollar debt and contract redenomination
policies to mitigate adverse financial and relative price consequences from a large devaluation. An analysis of Argentina’s
policy of devaluation with redenomination in 2002, in contrast to Mexico’s policy of devaluation without debt redenomination
in 1994–1995, shows that devaluation benefited tradables firms, and that dollar debt redenomination in Argentina benefited
high-dollar debtors, as shown in these firms’ investment behavior, especially non-tradables firms whose revenues in dollar
terms were adversely affected by devaluation. That investment behavior contrasts with the experience of Mexican firms in the
aftermath of Mexico’s large devaluation, in which non-tradables producers with high dollar debt displayed significant relative
reductions in investment. Stock return reactions to Argentine debt redenomination indicate large, positive, unanticipated
effects on high-dollar debtors from debt redenomination. Energy concession contract redenomination likewise increased investment
by high energy users in Argentina, and that benefit was apparent also in positive stock returns of those firms.
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Keywords: | Devaluation Redenomination Pesification Argentina |
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