THE USE OF THE EXCHANGE RATE AS AN ANTI-INFLATIONARY INSTRUMENT IN A STABILIZATION - LIBERALIZATION ATTEMPT: THE SOUTHERN CONE EXPERIENCE (ARGENTINA, CHILE, URUGUAY).

摘要

This work analyzes the stabilization-liberalization attempts that were implemented in Argentina, Chile and Uruguay in the mid-1970s. Specifically, we focus on the policy inaugurated during 1978 in the three countries consisting of the use of the exchange rate as the main anti-inflationary device. All three governments preannounced the path of the exchange rate. The initial announcement implied a rate of devaluation much lower than the inflation rate prevailing at that time.; The theory underlying the plan was the Monetary Approach to the Balance of Payments and specifically the proposition known as the Law of One Price in relative terms. It was thought that the inflation rate of tradeable commodities would be equal to the rate of devaluation plus the international inflation rate and that substitution effects in production and consumption would bring down the inflation rate of non-tradeable goods. This policy together with the control of domestic credit creation would reduce the rate of inflation without large economic costs while maintaining the equilibrium in the balance of payments.; Although the rate of inflation declined in the three countries the divergence between the domestic rate of inflation and the rate of devaluation plus any measure of international inflation was very large. As a result the deficit in current account reached unprecedented levels in the three countries and a large recession took place during the last months of the stabilization plans, especially in Chile and Uruguay.; The main scope of our study is to account for the divergence of domestic and international inflation rates and explain the differences among countries. By doing so we critically reviewed some explanations offered by other authors and put forward some of our own hypotheses.