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Abstract: Argentina's macroeconomic crisis of 2001-02 is a classic case of the interaction between exchange rate policy, fiscal policy, banking and external finance. It makes for a highly engaging teaching case because of its many layers. It was at one level a product of the hard peg of the Argentine currency to the dollar, and the loss of competitiveness with changing international conditions. The proximate cause of crisis was a run on reserves and bank deposits and dramatically country risk premium. But these symptoms were also intricately linked to fiscal policy, to IMF policy, to financial conditions and to Argentina's underlying political economy. The case is designed as a simulation, focused on the key moment of end-November 2001, with roles of Domingo Cavallo (Minister of Finance), the Argentine industry association, representatives of households, and the IMF. Students have to get inside the role to understand and defend the position of each group, drawing on tailored background material for each role.
Learning Objective: Understanding the macroeconomics of exchange rate crises, fixed and flexible exchange rate regimes, and the role of the IMF; Developing the capacity to get inside the roles of major domestic and external players in terms of interests and narratives; Presentation of policy positions in role.
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Eduardo Levy Yeyati, Michael Walton, Nicolás Ajzenman, Pilar Tavella