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Intro -- Contents -- I. INTRODUCTION -- II. OVERVIEW OF THE ARGENTINE BANKS IN THE RUN-UP TO THE CRISIS -- III. DESCRIPTIVE LOOK AT ARGENTINE BANKS IN THE 1995-2001 PERIOD -- IV. ECONOMETRIC ANALYSIS -- V. CONCLUSIONS -- REFERENCES.

The simple answer to both questions in the title of this paper is: No. We concentrate on the three main risk elements that contributed to the banking system’s difficulties during the crisis: increasing dollarization of the balance sheet, expanding exposure to the government, and, eventually, the run on deposits. We find that there was substantial cross-bank variation in these elements—that is, not all banks were hurt equally by macroeconomic shocks. Furthermore, using panel data estimation for the 1998–2001 period, we find that depositors were able to distinguish high- from low-risk banks, and that individual banks’ exposure to currency and government default risk depended on bank fundamentals and other characteristics. Thus, not all banks behaved equally in the run-up to the crisis. Finally, our results have implications for the existence of market discipline in periods of stress and for banking regulation, which may have led banks to underestimate some of the risks they incurred

The simple answer to both questions in the title of this paper. No. We concentrate on three key aspects of the banking system's difficulties during the 2001-02 crisis. Two are related to bank behavior (increasing dollarization of the balance sheet and expanding exposure to the government), and the other is related to the degree by which banks were hurt by depositor preferences, specifically, the run on deposits during 2001. We find that there was substantial cross-bank variation, that is, not all banks behaved equally nor were hurt equally by the macroeconomic shocks they faced during the run-up to the crisis. Furthermore, using panel data estimation, we find that depositors were able to distinguish high-risk from low-risk banks, and that individual bank's exposure to currency and government default risk depended on fundamentals and other bank-specific characteristics. Finally, our results have implications for the existence of market discipline in periods of stress, and for banking regulation, which may have led banks to underestimate some of the risks they incurred.

Recent cross-country empirical evidence indicates that the money-prices relationship depends on the average rate of inflation. This relationship is strong in economies with high inflation, but weakens under low inflation. Based on these findings, we study the dependence of the money-prices relationship on the level of inflation in Argentina along the last 35 years. We use descriptive analysis as well as cointegration tests to study the long run relationship between money growth and inflation. Proportionality holds for the high inflation period but weakens under low inflation. Money velocity is quite volatile but keeps a positive correlation with inflation in the long run. Under low inflation, velocity correlates negatively with money growth, a result consistent with the empirical evidence in the literature. Using VAR analysis, we focus on the transmission of nominal shocks to inflation in the short run. We enlarge the set of information to include other relevant macroeconomic variables such as the nominal interest rate, the multilateral nominal exchange rate depreciation and GDP growth. These results allow us to identify different dynamics of money growth and inflation under low and high inflation. In particular we are able to capture the role played by inflation expectations implicit in nominal interest rates in driving the dynamics of money growth and inflation under high inflation. Although the money growth-inflation short run relationship weakens under low inflation, money continues to play a role in explaining inflation dynamics.