IDEAS home Printed from
   My bibliography  Save this paper

La Política Monetaria, el Tipo de Cambio Real y el Encaje al Influjo de Capitales: Un Modelo Analítico Simple


  • Guillermo Le Fort


This paper presents a simple model based on several equilibrium relationships between the real exchange rate —the relative price of tradable and non tradable goods— and monetary policy, represented by the real interest rate. The domestic equilibrium represents the real exchange rate response directed at eliminating any excess demand in the goods market; the external equilibrium represents the real exchange rate response directed at maintaining a sustainable current account deficit; meanwhile the financial arbitrage condition represents the response that ensures that the expected return of financial capital is the same in domestic and foreign currency. There is only one real interest rate level and one real exchange rate level compatible with global equilibrium; without international capital mobility, monetary policy is fully autonomous to reach this global equilibrium position. The global equilibrium position can be modified by fiscal policy, particularly allowing the equilibrium to be attained at different levels of the real interest rate. Under full international capital mobility, monetary policy effectiveness is limited and a more flexible fiscal policy, that limits the impact of shocks on the equilibrium interest rate, or a reserve requirement on capital flows, that increases the operational range of monetary policy, is needed to preserve global equilibrium. Without them it will be necessary to take as given the external current account deficit levels that international financial markets are willing to accept, and these level can be extremely volatile, moving from the amplitude and easiness that allows for large expansions in domestic expenditure to the tough restrictions that require severe adjustments.

Suggested Citation

  • Guillermo Le Fort, 1998. "La Política Monetaria, el Tipo de Cambio Real y el Encaje al Influjo de Capitales: Un Modelo Analítico Simple," Working Papers Central Bank of Chile 36, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:36

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    Full references (including those not matched with items on IDEAS)


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

    Cited by:

    1. Christian Glocker & Pascal Towbin, 2012. "The Macroeconomic Effects of Reserve Requirements," WIFO Working Papers 420, WIFO.
    2. Le Fort Varela, Guillermo & Lehmann, Sergio, 2003. "The unremunerated reserve requirement and net capital flows: Chile in the 1990s," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:36. 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). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.