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Responses of Argentine Output to Shocks to Monetary Policy, Fiscal Policy and Exchange Rates: A VAR Model

Applying the VAR model and based on the equilibrium condition for aggregate demand and aggregate supply, the author finds that real GDP in Argentina responds negatively to a shock to the real interest rate, the external debt ratio, or the real exchange rate and positively to a shock to real stock prices or the lagged real GDP during some of the quarters. The response of real GDP to government deficit spending is insignificant. The depreciation of the peso harms real GDP. In view of these results, to stimulate the economy, the Argentine government needs to lower the real interest rate and the external debt ratio, maintain a healthy and stable stock market, and pursue a stable exchange rate.