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

Andres Solimano

No 212, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Economic Theory&Research; Environmental Economics&Policies; Macroeconomic Management; International Terrorism&Counterterrorism; Economic Stabilization (search for similar items in EconPapers)
Date: 1989-12-31
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Citations: View citations in EconPapers (14)

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