Publication: The Price of Inconvertible Deposits : The Stock Market Boom during the Argentine Crisis
Loading...
Date
2003-10
ISSN
Published
2003-10
Author(s)
Editor(s)
Abstract
The Argentine crisis witnessed, among other things, a deposit run, the suspension of deposit convertibility, and a "boom" in the stock market. The authors argue that this boom reflects the cost that depositors were willing to incur to get their money out of the banking system, in light of the impending risks. This boom was generalized to all stocks, and more pronounced in liquid stocks. Furthermore, the boom was a symptom that deposits were effectively restricted, and that investors were not able to circumvent capital controls.
Link to Data Set
Citation
“Levy Yeyati, Eduardo; Schmukler, Sergio L.; Van Horen, Neeltje. 2003. The Price of Inconvertible Deposits : The Stock Market Boom during the Argentine Crisis. Policy Research Working Paper;No. 3146. © http://hdl.handle.net/10986/18037 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication The Future of Poverty(Washington, DC: World Bank, 2025-07-15)Climate change is increasingly acknowledged as a critical issue with far-reaching socioeconomic implications that extend well beyond environmental concerns. Among the most pressing challenges is its impact on global poverty. This paper projects the potential impacts of unmitigated climate change on global poverty rates between 2023 and 2050. Building on a study that provided a detailed analysis of how temperature changes affect economic productivity, this paper integrates those findings with binned data from 217 countries, sourced from the World Bank’s Poverty and Inequality Platform. By simulating poverty rates and the number of poor under two climate change scenarios, the paper uncovers some alarming trends. One of the primary findings is that the number of people living in extreme poverty worldwide could be nearly doubled due to climate change. In all scenarios, Sub-Saharan Africa is projected to bear the brunt, contributing the largest number of poor people, with estimates ranging between 40.5 million and 73.5 million by 2050. Another significant finding is the disproportionate impact of inequality on poverty. Even small increases in inequality can lead to substantial rises in poverty levels. For instance, if every country’s Gini coefficient increases by just 1 percent between 2022 and 2050, an additional 8.8 million people could be pushed below the international poverty line by 2050. In a more extreme scenario, where every country’s Gini coefficient increases by 10 percent between 2022 and 2050, the number of people falling into poverty could rise by an additional 148.8 million relative to the baseline scenario. These findings underscore the urgent need for comprehensive climate policies that not only mitigate environmental impacts but also address socioeconomic vulnerabilities.Publication Exports, Labor Markets, and the Environment(Washington, DC: World Bank, 2025-07-14)What is the environmental impact of exports? Focusing on 2000–20, this paper combines customs, administrative, and census microdata to estimate employment elasticities with respect to exports. The findings show that municipalities that faced increased exports experienced faster growth in formal employment. The elasticities were 0.25 on impact, peaked at 0.4, and remained positive and significant even 10 years after the shock, pointing to a long and protracted labor market adjustment. In the long run, informal employment responds negatively to export shocks. Using a granular taxonomy for economic activities based on their environmental impact, the paper documents that environmentally risky activities have a larger share of employment than environmentally sustainable ones, and that the relationship between these activities and exports is nuanced. Over the short run, environmentally risky employment responds more strongly to exports relative to environmentally sustainable employment. However, over the long run, this pattern reverses, as the impact of exports on environmentally sustainable employment is more persistent.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication The Asymmetric Bank Distress Amplifier of Recessions(Washington, DC: World Bank, 2025-07-11)One defining feature of financial crises, evident in U.S. and international data, is asymmetric bank distress—concentrated losses on a subset of banks. This paper proposes a model in which shocks to borrowers’ productivity dispersion lead to asymmetric bank losses. The framework exhibits a “bank distress amplifier,” exacerbating economic downturns by causing costly bank failures and raising uncertainty about the solvency of banks, thereby pushing banks to deleverage. Quantitative analysis shows that the bank distress amplifier doubles investment decline and increases the spread by 2.5 times during the Great Recession compared to a standard financial accelerator model. The mechanism helps explain how a seemingly small shock can sometimes trigger a large crisis.Publication Impact of Heat Waves on Learning Outcomes and the Role of Conditional Cash Transfers(Washington, DC: World Bank, 2025-07-14)This paper evaluates the impact of higher temperatures on learning outcomes in Peru. The results suggest that 1 degree above 20°C is equivalent to 7 and 6 percent of a standard deviation of what a student learns in a year for math and reading tests, respectively. These results hold true when the main specification is changed, splitting the sample, collapsing the data at school level, and using other climate specifications. The paper aims to improve understanding of how to deal with the impacts of climate change on learning outcomes in developing countries. The evidence suggests that conditional cash transfer programs can mitigate the negative effects of higher temperatures on students’ learning outcomes in math and reading.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication International Financial Integration through the Law of One Price(World Bank, Washington, DC, 2006-04)The authors argue that the cross-market premium (the ratio between the domestic and the international market price of cross-listed stocks) provides a valuable measure of international financial integration, reflecting accurately the factors that segment markets and inhibit price arbitrage. Applying to equity markets recent methodological developments in the purchasing power parity literature, they show that nonlinear Threshold Autoregressive (TAR) models properly capture the behavior of the cross market premium. The estimates reveal the presence of narrow non-arbitrage bands and indicate that price differences outside these bands are rapidly arbitraged away, much faster than what has been documented for good markets. Moreover, the authors find that financial integration increases with market liquidity. Capital controls, when binding, contribute to segment financial markets by widening the non-arbitrage bands and making price disparities more persistent. Crisis episodes are associated with higher volatility, rather than by more persistent deviations from the law of one price.Publication Emerging Market Liquidity and Crises(World Bank, Washington, DC, 2007-12)Whereas conventional wisdom argues that markets shut down during crises, with sellers struggling to find buyers, we find that markets continue to operate during financial turmoil, even in narrow and volatile emerging economies. Simple event studies indicate that both trading volume and trading costs increase in crisis times. Prices change more with each dollar transacted (pushing the Amihud illiquidity measure up) and bid-ask spreads widen. More generally, econometric estimates show that large price downturns, typical of crises, are associated with higher trading activity and increased trading costs, with trading activity declining only later as crises progress. Thus, while trading activity tends to be negatively related to trading costs during tranquil times (and across securities), this relation appears to break down during crises. These results are consistent with the analytical literature on portfolio rebalancing by heterogeneous agents in times of crises.Publication Financial Globalization in Emerging Economies : Much Ado about Nothing?(2011-04-01)Financial globalization, defined as global linkages through cross-border financial flows, has become increasingly relevant for emerging markets as they integrate financially with the rest of the world. This paper argues that, because of the way it is often measured, it has also led to the misperception that financial globalization in emerging markets has been growing in recent years. The authors characterize the evolution of financial globalization in emerging markets using alternative measures, and find that, in the 2000s, financial globalization has grown only marginally and international portfolio diversification has been limited and declining over time. The paper revisits the empirical literature on the implications of financial globalization for local market deepening, international risk diversification, financial contagion, and financial dollarization, and finds them to be rather limited. Whereas financial globalization has indeed fostered domestic market deepening in good times, it has yielded neither the dividends of consumption smoothing (in line with limited portfolio diversification) nor the costs of amplifying global financial shocks. In turn, financial de-dollarization has largely reflected the undoing of financial offshoring and the valuation effects of real appreciation.Publication Emerging Economies in the 2000s : Real Decoupling and Financial Recoupling(2012-02-01)The paper documents an intriguing development in the emerging world in the 2000s: a decoupling from the business cycle of advanced countries, combined with the strengthening of the co-movements in the main emerging market assets that predates the synchronized sell-off during the crisis. In addition, the paper tests the hypothesis that financial globalization, to the extent that it creates a common, global investor base for emerging markets, could lead to a tighter asset correlation despite the weaker economic ties. While an examination of the impact of alternative financial globalization proxies does not yield conclusive results, a closer look at global emerging market equity and bond funds shows that the latter indeed foster financial recoupling during downturns, reflecting the fact that they trade near their respective benchmarks and respond to withdrawals by liquidating holdings across the board.Publication Living and Dying with Hard Pegs : The Rise and Fall of Argentina's Currency Board(World Bank, Washington, DC, 2003-03)The rise and fall of Argentina's currency board shows the extent to which the advantages of hard pegs have been overstated. The currency board did provide nominal stability and boosted financial intermediation, at the cost of endogenous financial dollarization, but did not foster monetary or fiscal discipline. The failure to adequately address the currency-growth-debt trap into which Argentina fell at the end of the 1990s precipitated a run on the currency and the banks, followed by the abandonment of the currency board and a sovereign debt default. The crisis can be best interpreted as a bad outcome of a high-stakes strategy to overcome a weak currency problem. To increase the credibility of the hard peg, the government raised its exit costs, which deepened the crisis once exit could no longer be avoided. But some alternative exit strategies would have been less destructive than the one adopted.
Users also downloaded
Showing related downloaded files
Publication Europe and Central Asia Economic Update, Fall 2024: Better Education for Stronger Growth(Washington, DC: World Bank, 2024-10-17)Economic growth in Europe and Central Asia (ECA) is likely to moderate from 3.5 percent in 2023 to 3.3 percent this year. This is significantly weaker than the 4.1 percent average growth in 2000-19. Growth this year is driven by expansionary fiscal policies and strong private consumption. External demand is less favorable because of weak economic expansion in major trading partners, like the European Union. Growth is likely to slow further in 2025, mostly because of the easing of expansion in the Russian Federation and Turkiye. This Europe and Central Asia Economic Update calls for a major overhaul of education systems across the region, particularly higher education, to unleash the talent needed to reinvigorate growth and boost convergence with high-income countries. Universities in the region suffer from poor management, outdated curricula, and inadequate funding and infrastructure. A mismatch between graduates' skills and the skills employers are seeking leads to wasted potential and contributes to the region's brain drain. Reversing the decline in the quality of education will require prioritizing improvements in teacher training, updated curricula, and investment in educational infrastructure. In higher education, reforms are needed to consolidate university systems, integrate them with research centers, and provide reskilling opportunities for adult workers.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication The Mexican Social Protection System in Health(World Bank, Washington DC, 2013-01)With a population of 113 million and a per-capita Gross Domestic Product, or GDP of US$10,064 (current U.S. dollars), Mexico is one of the largest and highest-income countries in Latin America and the Caribbean (LAC). The country has benefited from sustained economic growth during the last decade, which was temporarily interrupted by the financial and economic crisis. Real GDP is projected to grow 3.8 percent and 3.6 percent in 2012 and 2013, respectively (International Monetary Fund, or IMF 2012). Despite this growth, poverty in the country remains high; with half of the population living below the national poverty line. The country is also highly heterogeneous, with large socioeconomic differences across states and across urban and rural areas. In 2010, while the extreme poverty ratio in the Federal District and the states of Colima and Nuevo Leon was below 3 percent, in Chiapas, Guerrero, and Oaxaca it was 25 percent or higher. These large regional differences are also found in other indicators of well-being, such as years of schooling, housing conditions, and access to social services. This case study assesses key features and achievements of the Social Protection System in Health (Sistema de Proteccion Social en Salud) in Mexico, and particularly of its main pillar, Popular Health Insurance (Seguro Popular, PHI). It analyzes the contribution of this policy to the establishment and implementation of universal health coverage in Mexico. In 2003, with the reform of the General Health Law, the PHI was institutionalized as a subsidized health insurance scheme open to the population not covered by the social security schemes. Today, the PHI covers all of its intended affiliates, about 52 million peoplePublication Global Economic Prospects, June 2024(Washington, DC: World Bank, 2024-06-11)After several years of negative shocks, global growth is expected to hold steady in 2024 and then edge up in the next couple of years, in part aided by cautious monetary policy easing as inflation gradually declines. However, economic prospects are envisaged to remain tepid, especially in the most vulnerable countries. Risks to the outlook, while more balanced, are still tilted to the downside, including the possibility of escalating geopolitical tensions, further trade fragmentation, and higher-for-longer interest rates. Natural disasters related to climate change could also hinder activity. Subdued growth prospects across many emerging market and developing economies and continued risks underscore the need for decisive policy action at the global and national levels. Global Economic Prospects is a World Bank Group Flagship Report that examines global economic developments and prospects, with a special focus on emerging market and developing economies, on a semiannual basis (in January and June). Each edition includes analytical pieces on topical policy challenges faced by these economies.Publication Guide to the Debt Management Performance Assessment Tool(Washington, DC, 2008-02-05)The purpose of this document is to provide guidance and supplemental information to assist with country assessments of debt management performance, using the Debt Management Performance Assessment (DeMPA) tool. The DeMPA is a methodology used for assessing public debt management performance through a comprehensive set of 15 performance indicators spanning the full range of government Debt Management (DeM) functions. It is based on the principles set out in the International Monetary Fund (IMF) and World Bank guidelines for public debt management, initially published in 2001 and updated in 2003. It is modeled after the Public Expenditure and Financial Accountability (PEFA) framework for performance measurement of public financial management. The DeMPA has been designed to be a user-friendly tool to undertake an assessment of the strengths and weaknesses in government DeM practices. This guide provides additional background and supporting information so that a no specialist in the area of debt management may undertake a country assessment effectively. The guide can be used by assessors in preparing for and undertaking an assessment. It is particularly useful for understanding the rationale for the inclusion of the indicators, the scoring methodology, and the list of supporting documents or evidence required, and the questions that could be asked for the assessment.