Argentina's Feeble Recovery: Insights from a Real Business Cycle Approach

Abstract Argentina’s GDP increased 30% between 2002 and 2005, prompting optimistic assessments that the country had finally left behind its secular stagnation. However, this strong performance followed a sharp decline in economic activity and therefore could be the manifestation of a bounce‐back effect with no lasting impact on Argentina’s mediocre long‐term growth rates. The paper examines this conjecture with the quantitative discipline imposed by a Real Business Cycle methodology and concludes that the 2002–05 expansion was not only a rebound, but also considerably weaker than the model predicts, a finding not consistent with upbeat views about the country’s long‐term prospects.