Capital Controls in Chile: Effective? Efficient?
New empirical evidence with regards to the effectiveness and efficiency of Chile’s capital controls is provided here, based on more and better data on the range of controls and a broad assessment of their costs and benefits. The paper concludes that capital controls have been partially effective by raising the wedge between domestic and foreign interest rates, reducing aggregate net capital inflows, and changing the debt composition toward longer maturities, without significantly altering the real exchange rate. Part of these effects is temporary as the effectiveness of controls is eroded over time for a given interest rates differential. Controls may have been crucial by contributing to Chile’s lower exposure to short-term foreign liabilities at the time of the 1997-98 international financial turmoil. However, achieving temporary macroeconomic benefits by relying on capital controls involves incurring in financial and growth effects that raise concerns about their efficiency.The costs that resulted from the policy mix that comprised the capital controls, in terms of quasi-fiscal losses and lower investment and growth, were probably not negligible.
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- Bernard J Laurens & Jaime Cardoso, 1998. "Managing Capital Flows; Lessons From the Experience of Chile," IMF Working Papers 98/168, International Monetary Fund.
- Sebastian Edwards & Mohsin S. Khan, 1985. "Interest Rate Determination in Developing Countries: A Conceptual Framework (DÃ©termination du taux d'intÃ©rÃªt dans les pays en dÃ©veloppement: cadre thÃ©orique) (DeterminaciÃ³n de los tipos de inter," IMF Staff Papers, Palgrave Macmillan, vol. 32(3), pages 377-403, September.
- Francisco d Nadal De Simone & Piritta Sorsa, 1999. "A Review of Capital Account Restrictions in Chile in the 1990s," IMF Working Papers 99/52, International Monetary Fund.
- Salvador ValdÃ©s-Prieto & Marcelo Soto, 1998. "The Effectiveness of Capital Controls: Theory and Evidence from Chile," Empirica, Springer, vol. 25(2), pages 133-164, January.
- César Calderón M. & Francisco Gallego Y., 2002. "La Tasa de Interés Real Neutral en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 5(2), pages 65-72.
- Marcelo Soto & Salvador Valdés, 1996. "¿Es el Control Selectivo de Capitales Efectivo en Chile? Su Efecto sobre el Tipo de Cambio Real," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(98), pages 77-108.
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