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New Keynesian Models For Chile During the Inflation Targeting Regime: A Structural Approach

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  • Rodrigo Caputo
  • Felipe Liendo
  • Juan Pablo Medina

Abstract

Knowing the frictions that are present in the economy is a key step towards the efficient design of policy actions. In particular, price and wage rigidities determine the degree of tradeoff between output and inflation stabilization that central banks face. In this context, the main purpose of this paper is to determine the importance of nominal and real rigidities in the Chilean economy. In doing so, we derive and estimate a dynamic stochastic general equilibrium (DSGE) model for the Chilean economy. We find that several rigidities are present in the Chilean economy and, in particular, that. the degree of wage stickiness is higher than that of prices. Furthermore, imperfect passthrough from exchange rate to import prices is an important feature of the Chilean economy. The subsample analysis suggests that some rigidities and policy reactions may have changed. Those changes maybe related to more a more credible monetary policy.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 402.

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Date of creation: Dec 2006
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Handle: RePEc:chb:bcchwp:402

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Cited by:
  1. Felipe Morandé & Mauricio Tejada, 2009. "Sources of Uncertainty in Conducting Monetary Policy in Chile," Central Banking, Analysis, and Economic Policies Book Series, in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 12, pages 451-509 Central Bank of Chile.
  2. Javier García-Cicco, 2010. "Estimating Models for Monetary Policy Analysis in Emerging Countries," Working Papers Central Bank of Chile 561, Central Bank of Chile.
  3. Carlos Garcia & Wildo Gonzalez, 2014. "Why does monetary policy respond to the real exchange rate in small open economies? A Bayesian perspective," Empirical Economics, Springer, vol. 46(3), pages 789-825, May.
  4. Felipe Morandé Lavín & Mauricio Tejada, 2008. "Sources of Uncertainty for Conducting Monetary Policy in Chile," Working Papers wp285, University of Chile, Department of Economics.
  5. José De Gregorio, 2009. "Exchange Rates, Real Adjustment and Monetary Policy," Economic Policy Papers Central Bank of Chile 34, Central Bank of Chile.
  6. Rodrigo Caputo & Gustavo Leyva & Michael Pedersen, 2014. "The Changing Nature of Real Exchange Rate Fluctuations. New Evidence for Inflation-Targeting Countries," Working Papers Central Bank of Chile 730, Central Bank of Chile.
  7. Carlos Garcia, 2012. "Why Does Monetary Policy Respond to the Real Exchange Rate in Small Open Economies? A Bayesian Perspective," ILADES-Georgetown University Working Papers inv287, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  8. Felipe Morandé L. & Mauricio Tejada G., 2008. "Sources of Uncertainty in Monetary Policy Conduct in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(3), pages 45-80, December.

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