8 Sudden Stop, Financial Factors, and Economic Collapse in Latin America: Learning from Argentina and Chile

Guillermo A. Calvo · Ernesto Talvi

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Global Financial Crisis and Policies Monetary Policy and Economic Impact Economic Theory and Policy

Abstract

Abstract This chapter shows that the Russian 1998 crisis had a big impact on capital flows to Emerging Market Economies (EMEs), especially in Latin America, and that the impact of the Russian shock differs quite markedly across EMEs. To illustrate this statement, the polar cases of Chile and Argentina are compared. While Chile exhibited a significant economic slowdown after August 1998, it did not suffer the excruciating collapse suffered by Argentina, where even the payments system came to a full stop. This difference is attributed to the fact that Chile is more open to trade than Argentina, and that it appears to suffer much less from balance-sheet currency-denomination mismatch that was rampant in Argentina before the 2002 crisis (due to large domestic liability dollarization). The chapter is essentially descriptive but is in line with and, thus, complements econometric studies like Calvo, Izquierdo, and Mejia (NBER Working Paper 10520). The final section addresses policy issues in light of the chapter's findings and conjectures.

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References

2002Globalization and its discontents 1993Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors 1998Economic Crises: Evidence and Insights from East Asia 2000Rational contagion and the globalization of securities markets 2004Contagion in Emerging Markets: When Wall Street is a Carrier 2011Structural Reforms in Latin America: What Has Been Reformed and How to Measure it 2003El rumbo de las reformas. Hacia una nueva agenda para América Latina 1996Money, Exchange Rates, and Output

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