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How private investment reacts to changing macroeconomic conditions : the case of Chile in the 1980s

  • Solimano, Andres
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    This paper simulates a model of joint determination of private investment spending, aggregate investment profitability and the level of GDP for Chile. It addresses the following issues: (a) sharp cycles in economic activity - the boom of 1980-81, the steep recession of 1982-83, and the recovery afterward which increased the volatility of aggregate demand and discouraged investment; (b) sharp swings in the real exchange rate and real interest rates in the last decade which increased the variance of profitability causing an adverse effect on investment; (c) high real interest rates which restrained private investment; and (d) real appreciation and depreciation.

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    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2000/08/18/000009265_3960928145719/Rendered/PDF/multi_page.pdf
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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 212.

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    Date of creation: 31 Dec 1989
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    Handle: RePEc:wbk:wbrwps:212
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    1. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-08, August.
    2. Buffie, Edward F., 1986. "Devaluation, investment and growth in LDCs," Journal of Development Economics, Elsevier, vol. 20(2), pages 361-379, March.
    3. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    4. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Solimano, Andres, 1986. "Contractionary devaluation in the southern cone : The case of Chile," Journal of Development Economics, Elsevier, vol. 23(1), pages 135-151, September.
    6. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
    7. Ueda, Kazuo & Yoshikawa, Hiroshi, 1986. "Financial Volatility and the q Theory of Investment," Economica, London School of Economics and Political Science, vol. 53(29), pages 11-27, February.
    8. Alexander H. Sarris, 1973. "A Bayesian Approach To Estimation Of Time-Varying Regression Coefficients," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 2, number 4, pages 501-523 National Bureau of Economic Research, Inc.
    9. Serven, Luis & Solimano, Andres, 1992. "Private Investment and Macroeconomic Adjustment: A Survey," World Bank Research Observer, World Bank Group, vol. 7(1), pages 95-114, January.
    10. PAGAN, Adrian, . "Some identification and estimation results for regression models with stochastically varying coefficients," CORE Discussion Papers RP -413, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
    12. Hausman, Jerry A., 1983. "Specification and estimation of simultaneous equation models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 7, pages 391-448 Elsevier.
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