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Argentina's modern economic history offers perhaps the clearest evidence in support of a rules-based fiscal and monetary policy framework. From 1899 until 1914 the country abided by the rules of the gold standard and experienced rapid GDP growth with price stability. After WWI and until 1939, when it was mostly off the gold standard, its inflation rate and fiscal balances remained in line with those of the world's most developed countries. During the 1930s the Argentine Treasury was able to issue long-term debt in pesos at rates between 3% and 4% per annum. Something fundamental happened after 1945 and its effects proved persistent: since then inflation has averaged 143% a year-with several bouts of extreme inflation and hyperinflation. In the last 50 years, persistent and high fiscal imbalances, low growth and recurrent sovereign debt defaults have become semi-permanent features of the Argentine economy. This paper argues that Argentina suffers from a condition that can be described as fiscal and monetary anomie, the roots of which can be traced back to the establishment of a populist-corporatist economic regime in 1946. It also contends that the failure of the 1990s structural reforms reinforced this condition. [ABSTRACT FROM AUTHOR]

In this paper we do a couple of things: discussing a way to measure the welfare cost of country risk, and measuring it for Argentina in the period 1875-2006. There are two conclusions: a) the welfare cost of Argentine risk has been huge: for example, in the period 1976-2006 it was around 20% of GDP, several times larger than the welfare cost of any conventional distortion; b) this cost would be wholly paid by labor. These fascinating results deserve further investigation. [ABSTRACT FROM AUTHOR]

The paper holds that the country risk premium is the triggering factor of the business cycle in a small, financially open and highly volatile economy like that of Argentina. A rise of the premium determines a capital outflow, an aggregate demand contraction and a recession; a fall of the premium determines a capital inflow, an aggregate demand expansion and a boom. We build a model where country risk plays a central role in macroeconomic equilibrium. We evaluate the empirical relationship between country risk and GDP, consumption, investment, and the current account balance. We compare our country-risk model with those of various schools of macroeconomic thought. Main conclusions are: a) Country-risk perceptions of foreign and local investors determine the fraction of world income they like to spend in the small country and the country's GDP adjusts passively to that fraction. b) Country risk causes a sort of labor unemployment that resembles involuntary unemployment. c) Openness softens the impact of a rise in country risk. d) Argentine time series for the period 1985-97 show a strong negative correlation between country risk and those aggregate variables, with causality going from the former to the latter. [ABSTRACT FROM AUTHOR]