Copper Price, Fiscal Policu and Business Cycle in Chile
AbstractThis paper analyzes the impact of copper-price shocks on the Chilean business cycle from a general equilibrium perspective. Using a DSGE model, we compare the effects of transitory copper-price shocks under different fiscal rules. The results show that if the fiscal policy is conducted using a structural balance fiscal rule, such that the government saves most of the extra revenues from the higher copper price, then a copper price shock of 10% would increase output only by 0.05% and there would be a slight decrease in inflation. This last effect occurs due to a real appreciation of the exchange that compensates a slight increase in domestic goods inflation. In contrast, when fiscal policy is highly expansive, the same copper price increase implies an output expansion of up to 0.7%, an increase in inflation, and a real exchange rate appreciate of 0.2%. We show that the adoption of a flexible exchange rate regime would have contributed to isolate output (and inflation) from copper price shocks, although our quantification of the effect of this change in policy is small. We also show that if the structural balance fiscal rule lacks credibility, then a copper price shock would lead to much higher inflation than under full credibility.
Download InfoIf 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.
Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 458.
Date of creation: Dec 2007
Date of revision:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Frankel, Jeffrey A., 2011.
"How Can Commodity Exporters Make Fiscal and Monetary Policy Less Procyclical?,"
Working Paper Series
rwp11-015, Harvard University, John F. Kennedy School of Government.
- Frankel, Jeffrey A., 2011. "How Can Commodity Exporters Make Fiscal and Monetary Policy Less Procyclical?," Scholarly Articles 4735392, Harvard Kennedy School of Government.
- Juan Pablo Medina Guzman & Ruy Lama, 2010.
"Is Exchange Rate Stabilization an Appropriate Cure for the Dutch Disease?,"
IMF Working Papers
10/182, International Monetary Fund.
- Ruy Lama & Juan Pablo Medina, 2012. "Is Exchange Rate Stabilization an Appropriate Cure for the Dutch Disease?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 5-46, March.
- Levine, Paul & Pearlman, Joseph, 2011. "Monetary and Fiscal Policy in a DSGE Model of India," Working Papers 11/96, National Institute of Public Finance and Policy.
- Nicoletta Batini & Vasco J. Gabriel & Paul Levine & Joseph Pearlman, 2010.
"A Floating versus Managed Exchange Rate Regime in a DSGE Model of India,"
NIPE Working Papers
31/2010, NIPE - Universidade do Minho.
- Nicoletta Batini & Vasco Gabriel & Paul Levine & Joseph Pearlman, 2010. "A Floating versus Managed Exchange Rate Regime in a DSGE Model of India," Macroeconomics Working Papers 21992, East Asian Bureau of Economic Research.
- Nicoletta Batini & Vasco Gabriel & Paul Levine & Joseph Pearlman, 2010. "A Floating versus Managed Exchange Rate Regime in a DSGE Model of India," School of Economics Discussion Papers 0410, School of Economics, University of Surrey.
- Batini, Nicoletta & Gabriel, Vasco & Levine, Paul, 2010. "A Floating versus managed exchange rate regime in a DSGE model of India," Working Papers 10/70, National Institute of Public Finance and Policy.
- Carlos Capistrán & Gabriel Cuadra & Manuel Ramos Francia, 2011. "Policy Response to External Shocks: Lessons from the Crisis," Working Papers 2011-14, Banco de México.
- Frankel, Jeffrey, 2011.
"A Solution to Overoptimistic Forecasts and Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile,"
Working Paper Series
11-012, Harvard University, John F. Kennedy School of Government.
- Frankel, Jeffrey A., 2011. "A Solution to Overoptimistic Forecasts and Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," Scholarly Articles 4723209, Harvard Kennedy School of Government.
- Miranda, Jorge, 2012.
"Tipo de Cambio Real en Chile: Dinámica, Tendencia y Equilibrio
[Real Exchange Rate in Chile: Dynamics, Trend and Equilibrium]," MPRA Paper 43076, University Library of Munich, Germany.
- Juan Carlos Hatchondo & Francisco Roch & Leonardo Martinez, 2012.
"Fiscal Rules and the Sovereign Default Premium,"
IMF Working Papers
12/30, International Monetary Fund.
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.