Capital Account Policies in Chile Macro-financial considerations along the path to liberalization

Author/Editor:

Yan Carriere-Swallow ; Pablo Garcia-Silva

Publication Date:

May 14, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper recounts Chile’s experience with capital account policies since the 1990s. We present how two external shocks were confronted under very different macroeconomic and capital account frameworks. We show that during the 1997-98 Asian-LTCM-Russia crisis, a closed capital account and relatively rigid exchange rate severely constrained the monetary policy response to the shock, aggravating the fall in domestic demand. During the 2008-09 crisis, a full-fledged inflation targeting framework allowed the authorities to implement a significant countercyclical response. We argue that domestic stability considerations lay behind the policy regime switch toward capital account liberalization from 1999 onwards.

Series:

Working Paper No. 2013/107

Subject:

Balance of payments Banking Capital account Capital controls Capital inflows Exchange rates Foreign exchange Real exchange rates

English

Publication Date:

May 14, 2013

ISBN/ISSN:

9781484331460/1018-5941

Stock No:

WPIEA2013107

Pages:

32

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