Time Varying Interconnection between Argentina's Monetary Policy and Exchange Rate of Peso—Based on TVP-VAR Model

Abstract

Argentina has suffered from financial crises since 2001 and the global Covid-19 pandemic in 2020 may contribute to another recession. Peso has been depreciating since March 2020 and has almost lost all its value. To assess the effectiveness of the country's monetary policy in the pandemic, this paper analyses the time-varying interconnection between monetary policy and exchange rate by establishing the TVP-VAR model and comparing the debt crisis in 2020 with the previous crises. The results indicate that Argentina's current monetary policy did not stabilize the exchange rate but aggravated the depreciation with the increasing money supply.