High Inflation, Price Stability and Hysteresis Effect: Evidence from Argentina

Carlos Dabús, Fernando Delbianco, Andrés Fioriti

Abstract


We estimate a Currency Substitution model for 1980-2013 periods in Argentina. Following the Mongardini and Mueller (2000) specification, our paper studies the persistence of lower demand of local money, or dollarization, by including a hysteresis variable. By applying an ARDL (Auto Regressive Distributed Lags) model, we found a clear ratchet effect, which implies that in the short run agents do not adjust to changes on the fundamentals, leading to a significant hysteresis variable.


Keywords


Hysteresis Effect, Money Demand, Currency Substitution

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