Capital Account Liberalization and the Real Exchange Rate in Chile

Capital Account Liberalization and the Real Exchange Rate in Chile PDF

Author: Guillermo R. LeFort-Varela

Publisher: INTERNATIONAL MONETARY FUND

Published: 2005-06-01

Total Pages: 36

ISBN-13: 9781451861518

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After the failure of the early 1980s, a second attempt at capital account liberalization was gradually carried out in Chile during the 1990s, this time in parallel with increased exchange rate flexibility. Capital account regulations were applied to support the independent monetary policy committed to the inflation target, while the exchange rate was quasi-pegged within a band that targeted the real exchange rate (RER). Still, the policy framework directed at stabilizing the RER appears to have been of limited effectiveness, with the surges and sudden-stops in capital flows playing an important role in RER dynamics. Foreign exchange market intervention appears not to have affected the RER while reserve requirement appears to have exerted a depreciating effect. Government spending and import tariffs, appear to be significant tools to moderate the real appreciation thus providing one additional reason for adopting a countercyclical fiscal policy and accelerating trade openness

Capital Account Liberalization and the Real Exchange Rate in Chile

Capital Account Liberalization and the Real Exchange Rate in Chile PDF

Author: Guillermo Raúl LeFort-Varela

Publisher:

Published: 2005

Total Pages: 0

ISBN-13:

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After the failure of the early 1980s, a second attempt at capital account liberalization was gradually carried out in Chile during the 1990s, this time in parallel with increased exchange rate flexibility. Capital account regulations were applied to support the independent monetary policy committed to the inflation target, while the exchange rate was quasi-pegged within a band that targeted the real exchange rate (RER). Still, the policy framework directed at stabilizing the RER appears to have been of limited effectiveness, with the surges and sudden-stops in capital flows playing an important role in RER dynamics. Foreign exchange market intervention appears not to have affected the RER while reserve requirement appears to have exerted a depreciating effect. Government spending and import tariffs, appear to be significant tools to moderate the real appreciation thus providing one additional reason for adopting a countercyclical fiscal policy and accelerating trade openness when a country is facing strong capital inflows.

Capital Account Policies in Chile Macro-financial considerations along the path to liberalization

Capital Account Policies in Chile Macro-financial considerations along the path to liberalization PDF

Author: Mr.Yan Carriere-Swallow

Publisher: International Monetary Fund

Published: 2013-05-14

Total Pages: 32

ISBN-13: 1484336593

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This paper recounts Chile’s experience with capital account policies since the 1990s. We present how two external shocks were confronted under very different macroeconomic and capital account frameworks. We show that during the 1997-98 Asian-LTCM-Russia crisis, a closed capital account and relatively rigid exchange rate severely constrained the monetary policy response to the shock, aggravating the fall in domestic demand. During the 2008-09 crisis, a full-fledged inflation targeting framework allowed the authorities to implement a significant countercyclical response. We argue that domestic stability considerations lay behind the policy regime switch toward capital account liberalization from 1999 onwards.

Sequencing Capital Account Liberalization

Sequencing Capital Account Liberalization PDF

Author: Claudia Echeverria

Publisher: International Monetary Fund

Published: 1997-11-01

Total Pages: 116

ISBN-13: 1451857454

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This paper examines issues in sequencing and pacing capital account liberalization and draws lessons from experience in four countries (Chile, Indonesia, Korea, and Thailand). The paper focuses on the interrelationship between capital account liberalization, domestic financial sector reforms, and the design of monetary and exchange rate policy. It concludes that capital account liberalization should be approached as an integrated part of comprehensive reform strategies and should be paced with the implementation of appropriate macroeconomic and exchange rate policies.

Monetarism and Liberalization

Monetarism and Liberalization PDF

Author: Sebastian Edwards

Publisher: University of Chicago Press

Published: 1991-05-28

Total Pages: 274

ISBN-13: 9780226184890

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The successes and failures of free market policy in Chile, implemented in 1973 under the guidance of economists trained at the University of Chicago, are clearly explained in this well-written study. The authors argue that it was a combination of misjudgments, including important policy errors, that led to the collapse of the Chilean economy. "The Edwards's book is an indispensable guide to the policy reforms and mistakes that have taken the [Chilean] economy to its present state."—Philip L. Brock, Money, Credit, and Banking "This book is a 'must' for anybody interested in development economies and the problems of liberalization."—Hansjorg Blochliger, Journal of International Economics

Managing Capital Flows

Managing Capital Flows PDF

Author: Mr.Jaime Cardoso

Publisher: International Monetary Fund

Published: 1998-12-01

Total Pages: 53

ISBN-13: 145185823X

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As a result of the Asian crisis, methods of coping with volatile international capital markets have received considerable attention from observers and policymakers. It has been argued that the imposition by Chile of a nonremunerated reserve requirement on external borrowing played a useful role in the smooth liberalization of its capital account by allowing Chile to deal effectively with short-term capital inflows and thus to reduce its vulnerability to external shocks, and that such measures should be adopted by other countries. In light of this, this paper reviews Chile’s experience in managing capital flows and draws lessons for policymakers.

Liberalization of the Capital Account

Liberalization of the Capital Account PDF

Author: Mr.Donald J. Mathieson

Publisher: International Monetary Fund

Published: 1992-06-01

Total Pages: 60

ISBN-13: 1451973756

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This paper reviews the experience with capital controls in industrial and developing countries, considers the policy issues raised when the effectiveness of capital controls diminishes, examines the medium-term benefits and costs of an open capital account, and analyzes the policy measures that could help sustain capital account convertibility. As the effectiveness of capital controls eroded more rapidly in the 1980s than in earlier periods, new constraints were placed on the formulation of stabilization and structural reform programs. However, experience suggests that certain macroeconomic, financial, and risk management policies would allow countries to attain the benefits of capital account convertibility and reduce the financial risks created by an open capital account.

A Review of Capital Account Restrictions in Chile in the 1990s

A Review of Capital Account Restrictions in Chile in the 1990s PDF

Author: Mr.Francisco Nadal De Simone

Publisher: International Monetary Fund

Published: 1999-04-01

Total Pages: 56

ISBN-13: 1451847238

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This paper examines the Chilean experience with capital controls and reviews studies on controls on capital inflows. Controls on Chile’s inflows had only a temporary impact in reducing specific inflows because they were affected by avoidance. There is some evidence that controls increased interest rates and altered the composition of capital inflows. The studies, however, contain important methodological problems in measuring flows and significant econometric weaknesses, which cast doubt on the robustness of the estimates. No study has assessed the political economy of the controls. It seems premature to view the Chilean experience as supportive of controls on capital inflows.

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