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Fisherian Transmission and Efficient Arbitrage under Partial Financial Indexation: The Case of Chile

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  • Enrique G. Mendoza

    (International Monetary Fund)

Abstract

Partial financial indexation in Chile has produced a system in which most bank deposits are 30-day nonindexed deposits or 90-day indexed deposits. This paper uses data on the interest rates of these financial assets to test the joint hypothesis of rational expectations, efficient arbitrage, and a time-invariant liquidity premium. The data are also used to test whether the indexed/nonindexed interest spread is an accurate predictor of future changes in inflation, as the Fisher effect dictates. The significant implications of this empirical analysis for monetary policy are discussed.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 39 (1992)
Issue (Month): 1 (March)
Pages: 121-147

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Handle: RePEc:pal:imfstp:v:39:y:1992:i:1:p:121-147

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Cited by:
  1. Pamela Jervis, 2007. "Inflation Compensation and Its Components in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 10(2), pages 27-56, August.

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