Capital Account Liberalization and the Real Exchange Rate in Chile

 
Author/Editor: LeFort-Varela, Guillermo R.
 
Publication Date: June 01, 2005
 
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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: After the failure of the early 1980s, a second attempt at capital account liberalization was gradually carried out in Chile during the 1990s, this time in parallel with increased exchange rate flexibility. Capital account regulations were applied to support the independent monetary policy committed to the inflation target, while the exchange rate was quasi-pegged within a band that targeted the real exchange rate (RER). Still, the policy framework directed at stabilizing the RER appears to have been of limited effectiveness, with the surges and sudden-stops in capital flows playing an important role in RER dynamics. Foreign exchange market intervention appears not to have affected the RER while reserve requirement appears to have exerted a depreciating effect. Government spending and import tariffs, appear to be significant tools to moderate the real appreciation thus providing one additional reason for adopting a countercyclical fiscal policy and accelerating trade openness
 
Series: Working Paper No. 05/132
Subject(s): Capital account liberalization | Chile | Real effective exchange rates | Foreign exchange | Intervention | Reserve requirements | Capital flows

 
English
Publication Date: June 01, 2005
Format: Paper
Stock No: WPIEA2005132 Pages: 36
Price:
US$15.00 (Academic Rate:
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