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

Yan Carrière-Swallow and Pablo Garcia-Silva
Authors registered in the RePEc Author Service: Pablo Garcia Silva

No 2013/107, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; inflation targeting; financial market; financial crisis; foreign exchange; nominal exchange rate; capital controls; monetary policy; exchange rate policy; small-open economy; activist exchange rate policy; export-led growth; dollar-denominated central bank bank bond; exchange rate band; market risk regulation; central bank of Chile; fixed income; Capital account; Exchange rates; Capital inflows; Real exchange rates; Global (search for similar items in EconPapers)
Pages: 32
Date: 2013-05-14
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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