Resumption of Monetary Finance and Inflation in Argentina After 2001
After abandoning its currency board in 2001, Argentina returned to using monetary finance. Initially, the inflationary impact was muted because the government ran a large fiscal surplus, which slowed the growth of the monetary base. However, this was a temporary situation; once the government reverted to running deficits, the creation of new money accelerated, leading to increasingly rapid inflation.
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Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
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Resumption of Monetary Finance and Inflation in Argentina After 2001
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Following the end of its fixed exchange rate system in 2001, the Argentine government resumed the practice of creating new money. However, the rate of price increases remained relatively low for a period before accelerating significantly in later years. Which of the following best explains this initial period of muted inflation?
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