The 2000s commodity boom and the exchange rate in Argentina

Luciano Campos

doi:10.1108/aea-06-2019-0002

Abstract

Purpose This paper aims to estimate the impact of the 2000s commodity boom in the major Latin American economies. Design/methodology/approach The author used a structural vector autorregresive analysis where the selection of variables is conditional on a New Keynesian Model for a small open economy. Findings The evidence indicates that the Argentinean nominal exchange rate appreciated less while its output and inflation grew more than those of the other nations when subjected to commodity shocks. These results are interpreted as a more aggressive leaning-against-the-wind intervention by Argentina, probably to avoid the Dutch disease. Although the effects with regard to output were indeed stronger in Argentina, this was only at the expense of higher inflation and volatility suffered during the boom. Originality/value At the time of the writing of this paper, no work had evaluated Argentinean underperformace to the manner in which its exchange rate policy was handled in comparison with the rest of the region during the boom. This paper intends to fill this gap.

Highlights

During the 2000s, the prices of commodities nearly doubled in what would become one of the three major booms experienced since the Second World War
This article estimates the effects of commodity shocks during the 2000s commodity boom in Latin America
It investigates whether these disturbances were related to the poorer macroeconomic outcome observed in Argentina when compared to the other major economies in the region: i.e. its higher level of inflation and greater price and output volatilities

Summary

Introduction

During the 2000s, the prices of commodities nearly doubled in what would become one of the three major booms experienced since the Second World War. Because Latin American countries are important commodity exporters, they greatly benefited through increases in export revenues They faced difficulties due to the boom’s magnitude and duration, which challenged the exchange rate policy. On the one hand, allowing flexibility in the currency’s value would have led to appreciation that could have softened the impact on local prices and reduced output volatility. It has been known since Friedman (1953) that flexible exchange rates have better insulating properties than

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