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A decade lost and found: Mexico and Chile in the 1980s

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Listed:
  • Raphael Bergoeing
  • Patrick J. Kehoe
  • Timothy J. Kehoe
  • Raimundo Soto

Abstract

Chile and Mexico experienced severe economic crises in the early 1980s. This paper analyzes four possible explanations for why Chile recovered much faster than did Mexico. Comparing data from the two countries allows us to rule out a monetarist explanation, an explanation based on falls in real wages and real exchange rates, and a debt overhang explanation. Using growth accounting, a calibrated growth model, and economic theory, we conclude that the crucial difference between the two countries was the earlier policy reforms in Chile that generated faster productivity growth. The most crucial of these reforms were in banking and bankruptcy procedures.

Suggested Citation

  • Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2001. "A decade lost and found: Mexico and Chile in the 1980s," Staff Report 292, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:292
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    References listed on IDEAS

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    2. Vittorio Corbo & Stanley Fischer, "undated". "Lessons from the Chilean Stabilization and Recovery," Documentos de Trabajo 158, Instituto de Economia. Pontificia Universidad Católica de Chile..
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    More about this item

    Keywords

    Productivity; Depressions;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean

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