Relative Prices in Argentina Predict an Exchange Rate of 14.3 Pesos per Dollar

November 9, 2015

Policymakers in Argentina are likely to remove restrictions on the foreign exchange market in a month. If this happens, will the official exchange rate, which currently is 9.6 pesos per dollar, increase to match the unofficial black-market rate, currently at 15.7 pesos per dollar?

One way to answer this question is to look at the current level of relative prices between Argentina and the US. The PriceStats PPP index computes the cost of an identical basket of hundreds of products in categories such as food, fuel, and electronics in both countries. We can use it to calculate an implied exchange rate by taking the ratio of Prices in Argentina / Prices in the US. We call this the “PPP Exchange Rate” and plot it below together with the official and unofficial (“Blue”) market exchange rates (pesos per dollar).

The exchange rate implied by relative prices is currently 14.3, much higher than the official rate and a bit below the unofficial exchange rate. The last time the official rate was adjusted, in January 2014, it depreciated to exactly match the exchange rate implied by our relative prices. The current data therefore suggest that removal of exchange controls will likely depreciate the official rate significantly but not necessarily lead to higher prices, at least for the tradeable goods included in our basket. Those prices have already adjusted.

Argentina’s Nominal Exchange Rates
Official, Unofficial, and PriceStats (2011-2015)
Values are in pesos per dollar

PPP Exchange Rate |
Unofficial Exchange Rate |
Official Exchange Rate