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Monetary Policy Efficiency in Chile were there any Improvements?

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  • J. Marcelo Ochoa C.

Abstract

Output and inflation volatility has declined significantly in recent years. This improved economic behavior can be explained by both a reduction in the shocks faced by the country and a better monetary policy conduct. This paper explores the contribution of both factors to boosting Chile’s economic performance in the past fifteen years through three measures derived from the economy’s efficiency frontier. The measure capturing macroeconomic behavior presents an improvement (decline) of 200% between the periods 1992-2000 and 2001-2007—reflecting the reduction in output and inflation volatility—a fact that is explained by a reduction in the shocks (123%), and by by monetary policy efficiency gains (83%). Furthermore, between 2001 and 2006, the Chilean economy experienced the smallest magnitude of shocks since 1992, while the monetary policy was responsible for keeping the economy above the efficiency frontier.

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Bibliographic Info

Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 12 (2009)
Issue (Month): 1 (April)
Pages: 39-49

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Handle: RePEc:chb:bcchec:v:12:y:2009:i:1:p:39-49

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  1. Harvey,Andrew C., 1991. "Forecasting, Structural Time Series Models and the Kalman Filter," Cambridge Books, Cambridge University Press, number 9780521405737, April.
  2. Vittorio Grilli & Nouriel Roubini, 1995. "Liquidity Models in Open Economies: Theory and Empirical Evidence," Working Papers 95-16, New York University, Leonard N. Stern School of Business, Department of Economics.
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  4. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
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  6. Vittorio Corbo & Klaus Schmidt-Hebbel, 2001. "Inflation Targeting in Latin America," Working Papers Central Bank of Chile 105, Central Bank of Chile.
  7. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
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  9. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, December.
  10. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2006. "Has Monetary Policy become more Efficient? a Cross-Country Analysis," Economic Journal, Royal Economic Society, vol. 116(511), pages 408-433, 04.
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  12. repec:nbr:nberwo:12876 is not listed on IDEAS
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