This paper analyzes an unremunerated reserve requirement on cross-border short term credit inflows, as applied in Chile. The impact of this reserve requirement over the path of the real exchange rate is investigated empirically. The authorities expected this capital control to alleviate the real appreciation of the local currency which ensues after a restrictive monetary policy, which attracts capital inflows. This requires that an increase of the tax equivalent of this capital control at least delays the real appreciation that would normally ensue when domestic interest rates are raised. The empirical finding is that such effect is nil. The implication is that the authorities should not trust selective capital controls to mitigate this side effect of restrictive monetary policy. It is also found that, within government expenditure, only transfers have some (small) impact on the real exchange rate, once total national spending is controlled for. Purchases of international reserves by the Central Bank also depreciate the equilibrium real exchange rate, but the effect is small. Finally, it is shown that the Chilean real exchange rate is influenced by developments in international capital markets, including the supply of funds to emerging markets generally and country risk ratings.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.
For technical questions regarding this item, or to correct its listing, contact: (Verónica Gil).
Related research
Keywords:
Other versions of this item:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Did you know? You can include your works in the database easily by uploading them on the Munich Personal RePEc Archive (MPRA) if you do not have access to an institutional RePEc archive.