run, significant deviations from it seem to exist in the short run (see del Castillo ( 1986,
In 1978 the budget deficit was less than 1 percent of GDP. Fiscal balance was attained
in 1979, and there was a small surplus in 1980. In 1981 the deficit was still below 1.5 percent
of GDP, but it soared to over 9 percent in 1982.
In 1982 the deficit amounted to over 40 percent of total government revenue. This
was due to the large fall in GDP (of over 9 percent) in 1982 since revenues as a percentage
of GDP increased slightly from the previous year.
After an unprecedentedly large accumulation of international reserves from 1976 to 1981, the fall in reserves resulting from the balance-of-payments deficit in 1982 amounted
to half a billion dollars.
The Central Bank actually did so from February to September 1981 by offering
implicit exchange guarantees. During the first half of 1982 it was the Banco de la República
(the state commercial bank) that sold future guarantees.
Given the way we define the actual depreciation of the peso, monthly observations
of δtt starting in November 1981 are different ex ante and ex post since by representing the
rate of devaluation in the following 12 months they pick up the effect of the November 1982
devaluation that ended the tablita system. For this reason, to show our point that the
devaluation as scheduled in the tablita was a poor indicator of expectations, it was better to
estimate just up to November 1981.
For evidence on the integration hypothesis, see del Castillo ( 1987).
D. R. Khatkhate ( 1986) pointed out that the CPI gives too much weight to services
and that the GDP deflator is a better measure of inflation to measure real interest rates since
it gives more weight to capital goods and other long-lived assets. Since the GDP deflator is
not available on a monthly or even a quarterly basis, we used the WPI since we found that
it is highly correlated with the CPI and GDP deflator in estimations using annual data.
The best predictor of inflation this period is last period's inflation, given the
persistence of shocks. Nevertheless, two other measures of inflation were used: (1) the
annualized rate of the past six months and (2) the rate of the past six and future six months.
The overall pattern of real rates did not change significantly.
The spread, however, was largest in 1982, indicating that a larger percentage of
borrowers believed that they were better off borrowing in pesos.
Blejer M. I. ( 1982). "Interest Rate Differentials and exchange Risskcent Argentine
Experience." IMF Staff Papers 29 (June): 270-279.
Blejer M. I., and
J. Gil Diaz. ( 1986). "Domestic and External Factors in the Determination
of the Real Interest Rate: The Case of Uruguay." Economic Development and
Cultural Change 34 (April): 589-606.)
Calvo G. ( 1986). "Fractured Liberalism: Argentina under Martinez de Hoz." Economic
Development and Cultural Change 34 (April): 511-533.
J. de Melo, and
J. Tybout. ( 1986). "What Went Wrong with the Recent Reforms
in the Southern Cone?" Economic Development and Cultural Change 34 (April): 607-640.
del G. Castillo ( 1981). "Efecto del Riesgo de Cambio Sobre las Tasa de Interés Real." Paper