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

By Yan Carriere-Swallow, Pablo Garcia-Silva

May 14, 2013

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Yan Carriere-Swallow, and Pablo Garcia-Silva. Capital Account Policies in Chile Macro-financial considerations along the path to liberalization, (USA: International Monetary Fund, 2013) accessed November 21, 2024

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.

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

Keywords: Activist exchange rate policy, Capital account, Capital controls, Capital inflows, Central bank of Chile, Dollar-denominated central bank bank bond, Exchange rate band, Exchange rate policy, Exchange rates, Export-led growth, Financial crisis, Financial market, Fixed income, Foreign exchange, Global, Inflation targeting, Market risk regulation, Monetary policy, Nominal exchange rate, Real exchange rates, Small-open economy, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/107
Stock No:

WPIEA2013107
ISBN:

9781484331460
ISSN:

1018-5941

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