Copper and the Chilean Economy, 1960–98

IMF Working Papers, April 1, 1999

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Copper and the Chilean Economy, 1960–98

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Bibliographic details

• Authors: Antonio Spilimbergo
• Published: April 1, 1999
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451847758.001

Summary

• The paper concludes that world copper prices play an important role in short-term fluctuations and probably influence long-term growth of the Chilean economy.
• Investment seems to play a major role among the mechanisms at work.
• In a copper price boom:
  • The higher copper price and associated capital inflows create upward pressure on the real exchange rate.
  • The appreciation of the Chilean peso during the first part of the copper cycle contributes to lower inflation, which could partly explain why real wages grow more rapidly in this part of the cycle.

Key findings and mechanisms

• World copper prices significantly affect:
  • Short-term economic fluctuations in Chile.
  • Long-term growth prospects of the Chilean economy (probable influence).
• Transmission channels highlighted:
  • Investment as a major channel linking copper prices to economic performance.
  • Capital inflows associated with higher copper prices.
  • Real exchange rate appreciation during copper booms.
  • Inflation dynamics: appreciation contributes to lower inflation, supporting faster real wage growth in early cycle phases.

Policy-relevant implications

• Monitoring copper price cycles is important for macroeconomic management, given their effects on:
  • Real exchange rate behavior.
  • Inflation outcomes.
  • Investment dynamics and longer-term growth prospects.

Content in this bundle

• Copper and the Chilean Economy, 1960-98 - WP/99/57
  • Copper and the Chilean Economy, 1960-98 - WP/99/57 (Markdown version)
  • Copper and the Chilean Economy, 1960-98 - WP/99/57 (PDF)