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Policy Shifts and External Shocks in Chile Under Rational Expectations

Author

Listed:
  • 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.

Suggested Citation

  • Klaus Schmidt-Hebbel & Luis Serven, 2000. "Policy Shifts and External Shocks in Chile Under Rational Expectations," Econometric Society World Congress 2000 Contributed Papers 1098, Econometric Society.
  • Handle: RePEc:ecm:wc2000:1098
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    Cited by:

    1. Rómulo A. Chumacero, 2005. "A Toolkit for Analyzing Alternative Policies in the Chilean Economy," Central Banking, Analysis, and Economic Policies Book Series,in: Rómulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 8, pages 261-302 Central Bank of Chile.
    2. 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.
    3. Claudio Soto, 2004. "Unemployment and Consumption in Chile," Working Papers Central Bank of Chile 258, Central Bank of Chile.
    4. Felipe Morandé, 2002. "A Decade of Inflation Targeting in Chile: Developments, Lessons, and Challenges," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 14, pages 583-626 Central Bank of Chile.
    5. 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.
    6. 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.

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