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How private investment reacts to changing macroeconomic conditions : the case of Chile in the 1980s

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  • Solimano, Andres
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    Abstract

    This paper simulates a model of joint determination of private investment spending, aggregate investment profitability and the level of GDP for Chile. It addresses the following issues: (a) sharp cycles in economic activity - the boom of 1980-81, the steep recession of 1982-83, and the recovery afterward which increased the volatility of aggregate demand and discouraged investment; (b) sharp swings in the real exchange rate and real interest rates in the last decade which increased the variance of profitability causing an adverse effect on investment; (c) high real interest rates which restrained private investment; and (d) real appreciation and depreciation.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 212.

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    Date of creation: 31 Dec 1989
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    Handle: RePEc:wbk:wbrwps:212

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    Related research

    Keywords: Economic Theory&Research; Environmental Economics&Policies; Macroeconomic Management; International Terrorism&Counterterrorism; Economic Stabilization;

    References

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    1. Hausman, Jerry A., 1983. "Specification and estimation of simultaneous equation models," Handbook of Econometrics, Elsevier, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 7, pages 391-448 Elsevier.
    2. Ueda, Kazuo & Yoshikawa, Hiroshi, 1986. "Financial Volatility and the q Theory of Investment," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 53(29), pages 11-27, February.
    3. Serven, Luis & Solimano, Andres, 1992. "Private Investment and Macroeconomic Adjustment: A Survey," World Bank Research Observer, World Bank Group, World Bank Group, vol. 7(1), pages 95-114, January.
    4. Alexander H. Sarris, 1973. "A Bayesian Approach To Estimation Of Time-Varying Regression Coefficients," NBER Chapters, National Bureau of Economic Research, Inc, in: Annals of Economic and Social Measurement, Volume 2, number 4, pages 497-520 National Bureau of Economic Research, Inc.
    5. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 213-24, January.
    6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
    7. Solimano, Andres, 1986. "Contractionary devaluation in the southern cone : The case of Chile," Journal of Development Economics, Elsevier, Elsevier, vol. 23(1), pages 135-151, September.
    8. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-08, August.
    9. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
    11. PAGAN, Adrian, . "Some identification and estimation results for regression models with stochastically varying coefficients," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -413, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Buffie, Edward F., 1986. "Devaluation, investment and growth in LDCs," Journal of Development Economics, Elsevier, Elsevier, vol. 20(2), pages 361-379, March.
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    Cited by:
    1. Garrison, Charles B. & Lee, Feng-Yao, 1995. "The effect of macroeconomic variables on economic growth rates: A cross-country study," Journal of Macroeconomics, Elsevier, Elsevier, vol. 17(2), pages 303-317.
    2. Dinar, Ariel & Keck, Andrew, 1997. "Private irrigation investment in Colombia: effects of violence, macroeconomic policy, and environmental conditions," Agricultural Economics, Blackwell, Blackwell, vol. 16(1), pages 1-15, March.

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