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Policy Shifts and External Shocks in Chile Under Rational Expectations

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  • Klaus Schmidt-Hebbel

    (Central Bank of Chile)

  • Luis Serven

    (World Bank)

Abstract

This paper develops a macroeconomic general-equilibrium model fully parameterized for the Chilean economy. The model's basic relations can be rigorously derived from intertemporal optimization by rational forward-looking agents. However, it also introduces critical real-world features - such as short-run wage rigidities and liquidity constraints - that generate deviations from the frictionless full-employment equilibrium of the unconstrained neoclassical paradigm. The model is numerically simulated to explore the effects of various permanent and temporary unanticipated policy shifts and foreign shocks. The experiments - a fiscal expansion, a monetary contraction, and adverse international oil price and interest rate shocks - reflect the policy changes and foreign shocks that Chile is likely to face at the turn of the millenium.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1098.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1098

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Cited by:
  1. Claudio Soto G., 2004. "Desempleo y Consumo en Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 7(1), pages 31-50, April.
  2. Rómulo Chumacero, 2003. "A Toolkit for Analyzing Alternative Policies in The Chilean Economy," Working Papers Central Bank of Chile 241, Central Bank of Chile.
  3. Andrea Butelmann & Francisco Gallego, 2001. "Household Saving in Chile (1988 and 1997): Testing the Life Cycle Hypothesis," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 38(113), pages 3-48.
  4. Claudio Soto, 2004. "Unemployment and Consumption in Chile," Working Papers Central Bank of Chile 258, Central Bank of Chile.
  5. Felipe Morandé, 2001. "A Decade of Inflation Targeting in Chile: Developments, Lessons, and Challenges," Working Papers Central Bank of Chile 115, Central Bank of Chile.
  6. Marcelo Ochoa & Patricio Valenzuela, 2004. "Impactos de un Shock Externo en un Modelo Estocástico de Equilibrio General para una Economía Abierta: El Caso de Chile," Macroeconomics 0407007, EconWPA.

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