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Demanding DevaluationExchange Rate Politics in the Developing World$
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David A. Steinberg

Print publication date: 2015

Print ISBN-13: 9780801453847

Published to Cornell Scholarship Online: August 2016

DOI: 10.7591/cornell/9780801453847.001.0001

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The Political Appeal of Overvaluation

The Political Appeal of Overvaluation

Industrial Interests and the Repeated Overvaluation of the Argentine Peso

(p.118) 4 The Political Appeal of Overvaluation
Demanding Devaluation

David A. Steinberg

Cornell University Press

This chapter evaluates whether exchange rate overvaluation in Argentina follows the logic of the conditional preference theory. The first part documents the Argentine state's inability to control its labor and financial systems, and explains why the manufacturing sector should have high levels of influence over the country's exchange rate policies. The second half of the chapter examines the political dynamics of exchange policymaking in Argentina between 1966 and 2012. It is shown that Argentina's manufacturing sector has usually preferred an overvalued exchange rate to an undervalued one. There was one important exception to this general trend: between 2001 and 2005, when the country's economy was suffering from high degrees of excess capacity and business costs became disconnected from undervaluation as a result.

Keywords:   Argentina, exchange rate policy, monetary policy, overvalued exchange rate, conditional preference theory

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