Argentine Hyperinflation (or lack thereof)
During Econ lecture yesterday, we discussed hyperinflation and discussion turned to Argentina, particularly around the turn of the century (the one five years ago) when the fixed exchange rate was broken. After a bit more discussion, he concluded that perhaps it was a poor example. After some thought, I've come up with some reasons as to why there was no hyperinflation during the devaluation of 2001-2002:
- Income in pesos was effectively cut by 1/3 and so purchasing power was in line with discounted prices.
- The "corralito" curbed the purchasing power of those wage-earners whose income was still in dollars to levels comparable to that of peso-earners.
- Since firms were previously indifferent to receiving dollars or pesos (to a certain extent), the structure of some multinationals might have been such that expenses being paid in dollars and revenue being received in pesos. As a result, companies were forced to dismiss employees and unemployment shot up. A high unemployment rate creates downward pressure on price levels which would have counteracted any possible inflation.
I am by no means an economist so hopefully I'll have a chance to discuss this with him (a real economist) next week to see what his thoughts on that matter are.
