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Growth and Adjustment in Chile: A Look at the 1990s

In: Economic Growth: Sources, Trends, and Cycles

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Author Info

  • Vittorio Corbo

    (Centro de Estudios Públicos)

  • José Tessada

    (University of Maryland)

Abstract

This study provides a thorough review of the post-1998 slowdown in economic growth in Chile. This was a rather turbulent period in economic history, and as such, it motivates to carry on research on the likely causes of the slowdown and its possible solutions. The authors use an econometric model to test three competing hypotheses and derive general implications from the analysis. The first hypothesis puts the blame on bad luck, because of external shocks: namely, terms-of-trade losses and reduced capital inflows following the Asian crisis. A second hypothesis blames the slowdown on policies implemented as a response to the deteriorating external conditions, in particular the inability to achieve a balanced mix of monetary and fiscal policies during the 1997–1998 period. Fiscal imbalances and restrictive monetary policy, it is argued, led to very high interest rates, severely affecting the investment and consumption decisions of the private sector. Finally, a third explanation is that the lowdown resulted from the completion of a high growth cycle associated with the structural reforms introduced in the 1985–1995 period. The authors conclude that the slowdown in the Chilean economy was a mix of severe external shocks and lack of cooperation between fiscal and monetary policies.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

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This chapter was published in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Economic Growth: Sources, Trends, and Cycles, , chapter 14, pages 465-522, 2002.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v06c14pp465-522.

Handle: RePEc:chb:bcchsb:v06c14pp465-522

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References

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  1. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Mar.
  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1169-89, November.
  3. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  4. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1315, C.E.P.R. Discussion Papers.
  5. Vittorio Corbo & Klaus Schmidt-Hebbel, 2002. "Inflation Targeting in Latin America," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 230, Instituto de Economia. Pontificia Universidad Católica de Chile..
  6. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  7. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, Elsevier, vol. 44(7), pages 1389-1408, June.
  8. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  9. Shamik Dhar & Darren Pain & Ryland Thomas, 2000. "A small structural empirical model of the UK monetary transmission mechanism," Bank of England working papers 113, Bank of England.
  10. Marcel, Mario, 2001. "Balance Estructural del Gobierno Central. Metodología y Estimaciones para Chile
    [Structural Bazlance of Central Government. Methodology and estimates for Chile]
    ," MPRA Paper 43338, University Library of Munich, Germany.
  11. David Hargreaves, 1999. "SDS-FPS: a small demand-side version of the Forecasting and Policy System core model," Reserve Bank of New Zealand Discussion Paper Series G99/10, Reserve Bank of New Zealand.
  12. Meller, Patricio & O'ryan, Raul & Solimano, Andres, 1996. "Growth, equity, and the environment in Chile: Issues and evidence," World Development, Elsevier, Elsevier, vol. 24(2), pages 255-272, February.
  13. Juan Andrés Fontaine, 1991. "La Administración de la Política Monetaria en Chile, 1985-89," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 28(83), pages 109-130.
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Cited by:
  1. Vittorio Corbo & José Tessada, 2005. "Response to External and Inflation Schoks in a Small Open Economy," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Rómulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel ( (ed.), General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 2, pages 029-056 Central Bank of Chile.
  2. World Bank, 2004. "Chile : New Economy Study, Volume 1. Executive Summary and Policy Recommendations," World Bank Other Operational Studies 14710, The World Bank.
  3. World Bank, 2004. "Chile : New Economy Study, Volume 2. Background Documents," World Bank Other Operational Studies 14711, The World Bank.
  4. Francisco A. Gallego & Klaus Schmidt-Hebbel & Luis Servén, 2004. "General Equilibrium Dynamics of External Shocks and Policy Changes in Chile," Working Papers Central Bank of Chile, Central Bank of Chile 271, Central Bank of Chile.
  5. Francisco Gallego & Klaus Schmidt-Hebbel & Luis Servén, 2005. "General Equilibrium Dynamics of Foreign Shocks ans Policy Changes in Chile," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Rómulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel ( (ed.), General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 4, pages 113-162 Central Bank of Chile.

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