Advanced Search
MyIDEAS: Login to save this paper or follow this series

Capital Account Regulations and Macroeconomic Policy: Two Latin American Experiences

Contents:

Author Info

  • Carlos BudnevichA
  • Guillermo Le Fort

Abstract

The regulations that limit international financial integration have been at the center of a recent policy debate. Any developing economy can benefit from financial development, but international financial integration implies the risk of macroeconomic instability. The approach that has been favored in Chile and Colombia is one of gradual and limited financial integration, attempting to increase the effectiveness of monetary and exchange rate policies. The reduction in the risk premiurn demanded by investors has created downward pressure on domestic real interest rates, however a lower interest rate would increase domestic expenditure, the price level and the current account deficit. Among the policies put into effect to deal with this problem are increasing exchange rate flexibility and taxing external financing. Both countries have registered a successful macroeconomic performance, with the success partly owing to effective capital account regulation. The effectiveness of the regulations is shown in that a once and for all currency appreciation followed by a depreciating trend has been avoided, and that the current account deficit has been kept at sustainable levels. In other words, capital account regulations have avoided the overshooting (over appreciation) of the real exchange rate that would have occurred with large amounts of short term capital inflows. Using stronger restrictions on capital flows, quantitative limits for example, would not only create very significant microeconomic costs and slow economic and financial developments, but also most likely would be ineffective.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. 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.
File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/DTBC06A.PDF
Download Restriction: no

File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/DTBC06B.PDF
Download Restriction: no

File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/DTBC06C.PDF
Download Restriction: no

File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/DTBC06D.PDF
Download Restriction: no

Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 06.

as in new window
Length:
Date of creation: Mar 1997
Date of revision:
Handle: RePEc:chb:bcchwp:06

Contact details of provider:
Postal: Casilla No967, Santiago
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

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.:
as in new window
  1. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
  2. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-53, February.
  3. José Darío Uribe, 1995. "Flujos de Capital en Colombia: 1978-1994," BORRADORES DE ECONOMIA 002733, BANCO DE LA REPÚBLICA.
  4. Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-67, May/June.
  5. Ffrench-Davis, Ricardo, 1990. "Debt-Equity Swaps in Chile," Cambridge Journal of Economics, Oxford University Press, vol. 14(1), pages 109-26, March.
  6. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America," MPRA Paper 13843, University Library of Munich, Germany.
  7. Razin, Assaf & Sadka, Efraim, 1991. "Efficient investment incentives in the presence of capital flight," Journal of International Economics, Elsevier, vol. 31(1-2), pages 171-181, August.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sebastian Edwards, 1998. "Capital Flows, Real Exchange Rates, and Capital Controls: Some Latin American Experiences," NBER Working Papers 6800, National Bureau of Economic Research, Inc.
  2. Raúl Labán & Felipe Larraín, 1997. "El Retorno de los Capitales Privados a Chile en los Noventa: Causas, Efectos y Reacciones de Política," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 34(103), pages 339-362.
  3. Michael Ulan, 2000. "Review Essay: Is a Chilean-Style Tax on Short-Term Capital Inflows Stabilizing?," Open Economies Review, Springer, vol. 11(2), pages 149-177, April.
  4. Sebastian Edwards, 1998. "Capital Inflows into Latin America: A Stop-Go Story?," NBER Working Papers 6441, National Bureau of Economic Research, Inc.
  5. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:06. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.