El Encaje, los Flujos de Capitales y el Gasto: Una Evaluación empírica
The rapid expansion of private-sector expenditure in the 1990s was accompanied by a massive and increasing foreign capital inflow. A tight economic policy, characterized by high interest rates, was implemented in order to contain the private expenditure growth. As a way of reconciling high interest rates with increasing international financial integration, a reserve requirement on capital inflows was applied. The paper shows that private spending responds to the volume of capital inflows, and that these, in turn, respond significantly to the reserve requirement. We obtain that the effect of monetary policy on domestic spending is weakened by capital inflows when the exchange rate is not free to fluctuate in response to changes in interest rates. The reserve requirement can be used to avoid this weakening, by compensating the effects on capital inflows produced by interest rate spreads. The results also show that if the reserve requirement had been eliminated, capital inflows would have grown significantly and the excess domestic demand situation of 1997 would have been aggravated. A more effective strategy for controlling private expenditure would have needed a higher reserve requirement and an even tighter monetary policy, or else a counter-cyclical fiscal policy that would have increased public saving in periods of private expenditure expansion.
|Date of creation:||Feb 2000|
|Date of revision:|
|Contact details of provider:|| Postal: Casilla No967, Santiago|
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-13, June.
- Eduardo Engel & Alexander Galetovic & Claudio Raddatz, 1998.
"Taxes and Income Distribution in Chile: Some Unpleasant Redistributive Arithmetic,"
Documentos de Trabajo
41, Centro de Economía Aplicada, Universidad de Chile.
- Engel, Eduardo M. R. A. & Galetovic, Alexander & Raddatz, Claudio E., 1999. "Taxes and income distribution in Chile: some unpleasant redistributive arithmetic," Journal of Development Economics, Elsevier, vol. 59(1), pages 155-192, June.
- Eduardo M.R.A. Engel & Alexander Galetovic & Claudio E. Raddatz, 1998. "Taxes and Income Distribution in Chile: Some Unpleasant Redistributive Arithmetic," NBER Working Papers 6828, National Bureau of Economic Research, Inc.
- Patricio Rojas & Eduardo López & Susana Jiménez, 1997. "Determinantes del Crecimiento y Estimación del Producto Potencial en Chile: El Rol del Comercio," Working Papers Central Bank of Chile 24, Central Bank of Chile.
- Bernard Laurens & Jaime Cardoso, 1998. "Managing Capital Flows: Lessons From the Experience of Chile," IMF Working Papers 98/168, International Monetary Fund.
- Edward E. Leamer, 1982.
"Let's Take the Con Out of Econometrics,"
UCLA Economics Working Papers
239, UCLA Department of Economics.
- Manuel Agosin & Ricardo French-Davis, 1997. "Managing capital inflows in Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 24(2 Year 19), pages 297-326, December.
When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:64. 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)
If references are entirely missing, you can add them using this form.