Passive money system and control of exchange rates: The case of Argentina 1976–1981

Abstract

AbstractThis paper analyses the consequences of controlling exchange rates, in the context of a passive money system. We use the administration of José Alfredo Martínez de Hoz at Argentina's Ministry of Economy in the period 1976–1981, during the last Argentine military dictatorship, as a case study. Following the work of Julio H. G. Olivera, the policies categorized under the passive money system are studied to corroborate the inconsistencies of the programme, in the context of the “trilemma” of open economies. In turn, a brief analysis of the administration in various areas is carried out, to identify its consequences. The paper finds that attempts to anchor inflation expectations in the context of a passive money system are not effective if large fiscal deficits need to be financed.