Exchange rate based disinflation, wage rigidity, and capital inflows: tradeoffs for Chile, 1977-81

Timothy Condon, Vittorio Corbo and Jaime de Melo

No 146, Policy Research Working Paper Series from The World Bank

Abstract: Real exchange rate appreciation usually accompanies stabilization programs based on the exchange rate. One thing that causes the real exchange rate to appreciate is the capital inflows that follow liberalization of the capital account and the financial market. Capital inflows cause the exchange rate to appreciate in part because of the resulting increase in expenditures. This appreciation is exacerbated if there is some price rigidity, and if control of the money supply is only partial. All these conditions existed during Chile's experiment with exchange rate-based disinflation between 1978 and 1981. Simulating what might have been, the authors study how exchange rate based disinflation affects expenditures switching and reduction when wages are partially indexed in some segments of the labor market. The paper also shows the extent to which a more flexible rule on wage indexing would have offset the adverse impact of lower capital flows on protected sector employment.

Keywords: Economic Theory&Research; Macroeconomic Management; Environmental Economics&Policies; Economic Stabilization; Banks&Banking Reform (search for similar items in EconPapers)
Date: 1989-02-28
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi0page.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:146

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().