External Shocks and Inflationary Pressures in Argentina: A Post-Keynesian-Structuralist Empirical Approach

ABSTRACT

We examine two external shocks that trigger inflationary pressures in Argentina. The first corresponds to a shock in international prices of agricultural commodities exported by this country. The second external shock affects the nominal exchange rate ($/U$S). Through the estimation of a quarterly VAR with directional quantiles model for the 2004–2019 period, we show how the pass-through from these external shocks to the inflation rate operates asymmetrically and mainly through increments in nominal wages. We estimate that an external shock in the international agricultural commodities prices exported by Argentina engenders a pass-through of 10 per cent, vis-à-vis a shock in the nominal exchange rate with a pass-through of 25 per cent. We explain these results highlighting the relevance of the class struggle as a key inflationary transmission mechanism, in line with Post-Keynesian-Structuralist conflicting claims models of inflation. These empirical results pose significant challenges for economic policy design, particularly pondering the adoption of measures that aim to decouple the potentially disruptive effects of these external shocks on inflationary pressures in Argentina.

KEYWORDS:

• External shocks
• international agriculture commodities prices
• nominal exchange rate
• wages
• conflicting claims models of inflation
• Argentina
• VAR models

JEL CODES:

• C32
• E12
• E31
• F31
• F41

Acknowledgments

The authors would like to thank the editor Louis-Philippe Rochon and two anonymous referees. The authors are also grateful to Daniel Aromí, Emiliano Basco, Jorge Carrera, Oscar Cetrángolo, Ariel Dvoskin, Javier García Cicco, Daniel Heymann, Sebastián Katz, Andrés López, Damián Pierri, Martín Rapetti, Santiago Rossi and Sergio Woyecheszen for their useful comments and suggestions to a previous version of this paper. The usual disclaimer applies.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 Fischer, Sahay, and Vegh (2002) assess 133 cases of chronic inflation countries by setting a level of 100% annual inflation rate to identify chronic inflation episodes — i.e., high and persistent inflation rates. Some interesting empirical results of this paper indicate that: (1) almost 20% of the countries have been shown annual inflation rates records higher than the settled threshold (100%), (2) chronic inflation tends to be intrinsically destabilizing, and (3) inflation inertia lowers at high inflation regimes. These authors also point out an interesting stylized fact to motivate our paper (Fischer et al. 2002, p. 843): ‘Only one country (Argentina) that experienced an inflationary episode in excess of 400 percent per annum repeated the experience’.

2 For an insightful theoretical and analytical treatment of conflicting claims model of inflation, see Klein Martins and Skott (2021), Lavoie (2014), Rochon and Setterfield (2012), Dvoskin and Feldman (2010), Setterfield (2007 and 2009), Neville and Kriesler (2008), Godley and Lavoie (2007), Arestis and Sawyer (2005), Vernengo (2003), Cassetti (2003), Smithin (1994), Dalziel (1990), Dutt (1987), Taylor (1985, 1991), Sawyer (1982), Rowthorn (1977), and Kalecki (1971).

3 Martínez Correa, Lombardo, and Bentivegna (2018) provide some recent empirical evidence about the importance of labor conflict and union density in the Argentinian labor market.

4 This critical consideration also applies to, for instance, the study of Perry and Cline (2013) for the US economy. These authors propose a PK-S approach to inflation for justifying the estimation of a VAR model and to empirically show that the fall in the US inflation rate, and its volatility, could be explained by a cut in the nominal wages and a decreasing tendency in the import prices registered during the Great Moderation period.

5 Índice de precios de las materias primas agropecuarias. (http://www.bcra.gob.ar/PublicacionesEstadisticas/Precios_materias_primas.asp).

6 Tipo de cambio nominal oficial promedio mensual. (http://www.bcra.gov.ar/pdfs/operaciones/com3500.xls).

7 Índice de Precios al Consumidor (IPC), several sources, base 1999=100. We use different sources because the national statistical office, Instituto Nacional de Estadísticas y Censos (INDEC), was discredited for the period 2007–2015. In particular, we use the official series for 2004 to 2006, then we use the Ciudad de Buenos Aires for January 2007 to May 2016, and finally the official series again for the remaining.

8 There is no specific reason on the selected specifications other than offering different alternative robust models together with keeping the text short. Then, we decided to exclude ULC & EMAE from the estimations, although we already recognize the importance of ULC in terms of explaining conflicting claims models of inflation in theoretical models of PK-S tradition. In addition, the EMAE index is a production index that it does not have the same representativeness as GDP measures. For this reason, both GDP quarterly measures are the ones we believe should be there. EMAE is actually a monthly index, so the quarterly data is generated by using the end of the period value.

9 The exchange rate gap is the difference between the unofficial and official exchange rate. A higher gap means that the ‘market’ expects a future devaluation of the official one. The exchange rate gap is always positive in the sample, that is, in the entire sample the unofficial rate is always above (or equal) the official one, but it is never below. The commodities’ shock is associated with an appreciation of the exchange rate, which is the main object of study in our paper. Thus, as a result a commodity prices shock, the official exchange rate appreciates on average. This is not reflected in the gap, probably because of financial positions and exchange rate rigidities. Thus, this particular shock increases the distance between the unofficial exchange rate and the official one.

10 The increase in the prices of imported goods would not necessarily have a recessionary effect if nominal wages reacted accordingly or if the firms’ mark-up would adjust downwards. However, in the light of the findings of this paper this does not seem to be the case in Argentina. We would like to thank the reviewer for suggesting us this clarifying argument.