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

DABÚS, CARLOS; DELBIANCO, FERNANDO ANDRÉS; FIORITI, ANDRÉS

Revista de Analisis Economico

Universidad Alberto Hurtado

Año: 2016

0716-5927

We estimate a Currency Substitution model for1980-2013 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 hysteresisvariable. By applying an ARDL (Auto Regressive Distributed Lags) model, we found a clear ratchet effect, which impliesthat in the short run agents do not adjust to changes on the fundamentals, leadingto a significant hysteresis variable.