http://www.bis.org/cbhub/list/country/country_chile/index.rss Latest research hub papers from Chile en http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc666.pdf Central Bank of Chile Working Papers by Roberto Alvarez, Ricardo López Financial Development, Exporting and Firm Heterogeneity in Chile 2012-04-13T06:19:59Z Using plant-level data from Chile's manufacturing sector for the period 1990-2000, this paper examines the effect of financial development on the probability of exporting at the plant level, with a special focus on the heterogeneous responses of plants with different characteristics. The main results are that an improvement in financial development increases the probability of exporting of more productive plants and those with foreign ownership operating in manufacturing sectors that are more dependent on external finance. Our estimates also indicate that financial development does not appear to improve the probability of exporting for relatively smaller and younger plants. This result suggests that, at least for the case of exporting in Chile, smaller and younger plants are not necessarily more likely to benefit from improvements in access to credit than larger and older ones. Financial Development, Exporting and Firm Heterogeneity in Chile 2012-04-13T06:19:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/666.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc666.pdf Roberto Alvarez Ricardo López Roberto Alvarez, Ricardo López 2012-03 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc664.pdf Central Bank of Chile Working Papers by Ernesto Pastén Rational Inattention, Multi-Product Firms and the Neutrality of Money 2012-02-23T06:19:59Z I augment the rational inattention model of price-setting (in which firms have a limited capacity to process information) to allow firms to produce multiple goods. My main contribution is to highlight the economies of scale in the use of information that arise in this context, which firms exploit by acquiring information of aggregate variables: Aggregate information is useful for pricing all goods; idiosyncratic information is only useful for pricing goods it is concerned with. The model quantitatively predicts average price changes consistent with the data for the U.S., low costs for firms due to the friction, and comovement of prices inside firms. Importantly, the economies of scale in the use of information cut by four the capacity of the model to deliver money non-neutrality when firms produce two goods instead of one. Money becomes almost neutral when firms produce five goods or more. Rational Inattention, Multi-Product Firms and the Neutrality of Money 2012-02-23T06:19:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/664.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc664.pdf Ernesto Pastén Ernesto Pastén 2012-02 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc663.pdf Central Bank of Chile Working Papers by Luis Felipe Céspedes, Jorge Fornero, Jordi Galí Non - Ricardian Aspects of Fiscal Policy in Chile 2012-02-20T17:34:59Z This paper examines non-Ricardian effects of government spending shocks in the Chilean economy. We first provide evidence on those effects based on vector autoregressions. We then show that such evidence can be accounted for by a model that features: (i) a sizeable share of non-Ricardian households (i.e. households which do not make use of financial markets and just consume their current labor income); (ii) nominal price and wage rigidities; (iii) an inflation targeting scheme, and (iv) a structural balance fiscal rule that represents the particular Chilean fiscal rule. The model is estimated employing Bayesian techniques. Finally, we use model simulations to demonstrate the countercyclical effects of the Chilean fiscal rule as compared with a zero-deficit rule. Non - Ricardian Aspects of Fiscal Policy in Chile 2012-02-20T17:34:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/663.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc663.pdf Luis Felipe Céspedes Jordi Galí Jorge Fornero Luis Felipe Céspedes, Jorge Fornero, Jordi Galí 2012-02 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc661.pdf Central Bank of Chile Working Papers by Pablo Pincheira Are Forecast Combinations Efficient? 2012-02-16T17:36:00Z It is well known that weighted averages of two competing forecasts may reduce Mean Squared Prediction Errors (MSPE) and may also introduce certain inefficiencies. In this paper we take an in-depth view of one particular type of inefficiency stemming from simple combination schemes. We identify testable conditions under which every linear convex combination of two forecasts displays this type of inefficiency. In particular, we show that the process of taking averages of forecasts may induce inefficiencies in the combination, even when the individual forecasts are efficient. Furthermore, we show that the so-called "optimal weighted average" traditionally presented in the literature may indeed be suboptimal. We propose a simple testable condition to detect if this traditional weighted factor is optimal in a broader sense. An optimal "recombination weight" is introduced. Finally, we illustrate our findings with simulations and an empirical application in the context of the combination of inflation forecasts. Are Forecast Combinations Efficient? 2012-02-16T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/661.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc661.pdf Pablo Pincheira Pablo Pincheira 2012-01 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc655.pdf Central Bank of Chile Working Papers by Rodrigo Caputo, Miguel Fuentes Government Spending and the Real Exchange Rate: a Cross - Country Perspective 2012-02-08T17:34:59Z In this paper we study, from an empirical point of view, the determinants of the real exchange rate (RER). Relative to the vast previous literature on this topic we aim to distinguish the impact of two important components of government expenditure-public investment and transfers-on the RER, which has usually been neglected. Using panel cointegration techniques, we assess the relevance of those variables in the determination of the RER for a wide set of countries from 1980 to 2009. Our results suggest that changes in either government transfers or public investment have an impact on the RER in emerging economies. On one hand, transfers tend to appreciate the RER because they induce an increase in the relative demand for nontraded goods. On the other, an increase in public investment generates an RER depreciation. This result can be explained by the fact that, in this case, there is an increase in the relative productivity in the nontraded sector of the economy. We also study the effect of countries' net external assets position on the RER and find that it differs markedly between developed and developing countries: this variable has a significant effect only in the case of developing economies. Government Spending and the Real Exchange Rate: a Cross - Country Perspective 2012-02-08T17:34:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/655.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc655.pdf Rodrigo Caputo Miguel Fuentes Rodrigo Caputo, Miguel Fuentes 2012-01 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc657.pdf Central Bank of Chile Working Papers by Carlos Medel How informative are in - Simple Information Criteria to Forecasting? the Case of Chilean GDP 2012-02-08T17:34:59Z There is no standard economic forecasting procedure that systematically outperforms the others at all horizons and with any dataset. A common way to proceed, in many contexts, is to choose the best model within a family based on a fitting criteria, and then forecast. I compare the out-of-sample performance of a large number of autoregressive integrated moving average (ARIMA) models with some variations, chosen by three commonly used information criteria for model building: Akaike, Schwarz, and Hannan-Quinn. I perform this exercise to identify how to achieve the smallest root mean squared forecast error with models based on information criteria. I use the Chilean GDP dataset, estimating with a rolling window sample to generate one- to four-step ahead forecasts. Also, I examine the role of seasonal adjustment and the Easter effect on out-of-sample performance. After the estimation of more than 20 million models, the results show that Akaike and Schwarz are better criteria for forecasting purposes where the traditional ARMA specification is preferred. Accounting for the Easter effect improves the forecast accuracy only with seasonally adjusted data, and second-order stationarity is best. How informative are in - Simple Information Criteria to Forecasting? the Case of Chilean GDP 2012-02-08T17:34:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/657.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc657.pdf Carlos Medel Carlos Medel 2012-01 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc650.pdf Central Bank of Chile Working Papers by Gonzalo Castex; Miguel Ricaurte Self - Employment, Labor Market Rigidities and Unemployment Over the Business Cycle 2011-12-27T12:35:59Z In a general equilibrium context, we analyze the impact of changes in institutional labor market conditions, such as access to financing and efficiency, on the composition of employment and unemployment, considering the nature of formal labor contracts and the entrepreneurial capacity of the labor force. We extend the Mortensen - Pissarides model to allow for two types of formal job contracts: temporary and permanent; and we also allow for self-employment. We show that labor market efficiency as well as access to selfemployment financing played a key role in the evolution of employment in Chile during the last 15 years. Additionally, and not surprisingly, tougher access to financing adversely affects self-employment Self - Employment, Labor Market Rigidities and Unemployment Over the Business Cycle 2011-12-27T12:35:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/650.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc650.pdf Gonzalo Castex Miguel Ricaurte Gonzalo Castex; Miguel Ricaurte 2011-12 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc649.pdf Central Bank of Chile Working Papers by Álvaro Aguirre The Risk of Civil Conflicts as a Determinant of Political Institutions 2011-12-27T12:35:59Z This paper proposes a specific mechanism to explain differences in political institutions based on the asymmetric and uncertain costs of civil conflicts. Asymmetry implies that the net benefit of fighting an insurgency is not shared equally by members of the elite. But uncertainty implies that these benefits are more evenly distributed ex-ante. The members of the elite face a commitment problem: they would like to commit in advance to a strong response to insurgencies, but ex-post they have the incentives to block any response if the conflict mainly affects other members of the elite. One way of solving this is empowering the executive so he may react forcefully to conflicts, despite the opposition of some fraction of the elite. In the model this group has to decide on the constraints imposed on the executive. Fewer constraints lead to a higher risk of expropriation. But more constraints lead to a suboptimal response to conflicts. The main prediction is that, conditional on asymmetric and uncertain costs, the higher is the likelihood of a civil conflict in the future, the lower are the constraints imposed on the executive. The paper empirically validates this implication using two types of evidence. First, it uses a sample of former colonies that became independent after WWII and geographic variables to identify the exogenous component of the likelihood of civil conflicts at the moment of the independence. Second, the model is used to explain the political events in the Americas after independence. Countries less prone to internal conflicts were the ones that imposed more constraints on the executive during the second half of the nineteenth century. The Risk of Civil Conflicts as a Determinant of Political Institutions 2011-12-27T12:35:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/649.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc649.pdf Álvaro Aguirre Álvaro Aguirre 2011-12 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc648.pdf Central Bank of Chile Working Papers by Michael Pedersen Propagation Shocks to Food and Energy Prices: an International Comparison 2011-12-22T12:35:59Z The present paper analyzes propagation of shocks to food and energy prices in 46 countries with data from the period 1999-2010. The empirical evidence suggests that in only one of the countries considered, a shock to the price of either energy or food shows no propagation to the prices of the goods and services included in the core inflation measure. In general, the propagation effect of food price shocks is larger than that of energy price shocks. Emerging economies are more affected by propagation than advanced ones. The results advocate that policy makers concerned with price stability should pay special attention to shocks affecting domestic food prices. Propagation Shocks to Food and Energy Prices: an International Comparison 2011-12-22T12:35:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/648.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc648.pdf Michael Pedersen Michael Pedersen 2011-12 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc646.pdf Central Bank of Chile Working Papers by Yan Carrière-Swallow, Luis Felipe Céspedes The Impact of Uncertainty Shocks in Emerging Economies 2011-11-24T17:36:59Z A recent strand of research proposes that sudden jumps in uncertainty generate rapid drops and recoveries in real macroeconomic variables that drive the business cycle. Using an empirical model, we find substantial heterogeneity in the reactions to these shocks across countries. In comparison to the U.S. and other developed countries, emerging economies suffer much more severe falls in investment and private consumption following an exogenous uncertainty shock, take significantly longer to recover, and do not experience a subsequent overshoot in activity. We provide evidence that the dynamics of investment and consumption are correlated with the depth of financial markets. Once we control for the potential role of credit constraints, we find that investment and consumption dynamics in emerging economies are similar to those in developed economies. In this context, monetary and fiscal policy actions that alleviate the impact of credit constraints facing firms and households may reduce the impact of uncertainty shocks in these economies. The Impact of Uncertainty Shocks in Emerging Economies 2011-11-24T17:36:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/646.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc646.pdf Yan Carrière-Swallow Luis Felipe Céspedes Yan Carrière-Swallow, Luis Felipe Céspedes 2011-11 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc647.pdf Central Bank of Chile Working Papers by Yan Carrière-Swallow, Carlos Medel Incertidumbre Global sobre la Economía Chilena 2011-11-24T17:36:59Z In this paper we estimate the impact of global uncertainty shocks -identified as sudden jumps in U.S. stock market volatility- on certain sectors of the Chilean economy. Using a reduced-form VAR approach, we estimate that uncertainty shocks generate a fall in GDP of 1.7% with respect to trend, and a fall in domestic demand of 2.2% within three quarters. On the supply side, the sector in which activity falls most is construction (-4.0%), while the largest drops in demand occur in durable goods consumption (-7.0%) and investment in plant and equipment (-10.0%). These results are broadly consistent with the literature on investment under uncertainty with partial irreversibility, and provide preliminary evidence about possible mechanisms through which global uncertainty affects emerging markets, with corresponding implications for stabilization policy. Incertidumbre Global sobre la Economía Chilena 2011-11-24T17:36:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/647.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc647.pdf Carlos Medel Yan Carrière-Swallow Yan Carrière-Swallow, Carlos Medel 2011-11 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc645.pdf Central Bank of Chile Working Papers by Carlos J. García, Andrés Sagner Crédito, Exceso de toma de Riesgo, Costo de Crédito y ciclo Económico en Chile 2011-10-20T17:36:00Z This paper studies the interaction between the business cycle and the credit market. A first result is that the business cycle has procyclical effects on different types of credit (i.e., consumer, commercial and mortgage loans). The results area obtained through the identification of structural shocks of VAR models that empirically replicate the standard transmission mechanism of monetary policy that has been found in previous work on the Chilean economy. However, our evidence points to new results. Periods of economic expansion trigger in the medium term, first, an increase in non- performing loans, and then, a decline in credit. We interpret this phenomenon as excessive risktaking. Similarly, periods of economic contraction and high interest rates are followed by a drop in non-performing loans in the medium term and then by a credit expansion. Finally, unexpected increases in non-performing loans can also produce contractionary effects, a rise in inflation by increasing credit risk and financial costs for firms. Crédito, Exceso de toma de Riesgo, Costo de Crédito y ciclo Económico en Chile 2011-10-20T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/645.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc645.pdf Carlos García Andrés Sagner Carlos J. García, Andrés Sagner 2011-09 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc644.pdf Central Bank of Chile Working Papers by Sofia Bauducco, Francesco Caprioli Optimal Fiscal Policy in a Small Open Economy with Limited Commitment 2011-10-20T17:36:00Z We introduce limited commitment into a standard optimal fiscal policy model in small open economies. We consider the problem of a benevolent government that signs a risk-sharing contract with the rest of the world, and that has to choose optimally distortionary taxes on labor income, domestic debt and international debt. Both the home country and the rest of the world may have limited commitment, which means that they can leave the contract if they find it convenient. The contract is designed so that, at any point in time, neither party has incentives to exit. We define a small open emerging economy as one where the limited commitment problem is active in equilibrium. Conversely, a small open developed economy is an economy with full commitment. Our model is able to rationalize two stylized facts about fiscal policy in emerging economies: i) the volatility of tax revenues over GDP is higher in emerging economies than in developed ones; ii) the volatility of tax revenues over GDP is positively correlated with sovereign default risk. Optimal Fiscal Policy in a Small Open Economy with Limited Commitment 2011-10-20T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/644.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc644.pdf Francesco Caprioli Sofia Bauducco Sofia Bauducco, Francesco Caprioli 2011-09 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc643.pdf Central Bank of Chile Working Papers by Álvaro Aguirre Contracting Institutions and Economic Growth 2011-09-08T17:36:00Z This paper studies the effects of contracting institutions on economic development. A growth model is presented with endogenous incomplete markets, where financial frictions generated by the imperfect enforcement of contracts depend on the future growth of the economy, which determines the costs of being excluded from financial markets after defaulting. As the economy approaches its balanced growth path, frictions and their effect on income become more important because the net benefits of honoring contracts decrease. Therefore, as the economy approaches its steady state, the effect of contracting institutions on GDP per capita increases. This effect is due not only to a slower accumulation of capital, but also to a misallocation of resources toward labor-intensive productive sectors, where self-enforcing incentives are stronger. To validate the model empirically, the paper modifies previous specifications of cross-country regressions to estimate the effect of contracting institutions on per capita GDP. In line with the main predictions of the model, the econometric evidence shows that this effect is larger in economies that were relatively close to their steady states in 1950. Unlike contracting institutions, the evidence shows that property-rights institutions, included in an extension to the model, have an effect on income per capita throughout the development process. Contracting Institutions and Economic Growth 2011-09-08T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/643.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc643.pdf Álvaro Aguirre Álvaro Aguirre 2011-08 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc642.pdf Central Bank of Chile Working Papers by Gastón Chaumont, Miguel Fuentes, Felipe Labbé, Alberto Naudon Dinámica de Precios en Chile: Evidencia con datos de Supermercados 2011-08-24T17:36:00Z In this paper we use a new weekly database of scanner-level prices for the Chilean economy to characterize the price-setting behavior in the supermarket industry. This period corresponds to an episode of relatively high inflation marked by a boom and a subsequent bust (from July 2007 to July 2009). Results show that prices have an average duration slightly greater than two weeks and that price changes are more frequent in Chilean supermarket than in those of other countries. Besides, changes are smaller in absolute value and price change distributions are roughly symmetric. We also find a positive and robust correlation between the absolute size of price changes and price duration. In addition, an inflation variance decomposition exercise shows that price variability is mainly explained by price change variability. Altogether, this evidence points toward a time-dependent pricing behavior in Chilean supermarkets. Dinámica de Precios en Chile: Evidencia con datos de Supermercados 2011-08-24T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/642.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc642.pdf Gastón Chaumont Felipe Labbé Miguel Fuentes Alberto Naudon Gastón Chaumont, Miguel Fuentes, Felipe Labbé, Alberto Naudon 2011-08 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc641.pdf Central Bank of Chile Working Papers by Gastón Chaumont, Miguel Fuentes, Felipe Labbé, Alberto Naudon A Reassessment of Flexible Price Evidence Using Scanner Data: Evidence from an Emerging Economy 2011-08-24T17:36:00Z In this paper we use a new database of scanner-level prices for the Chilean economy to characterize the microeconomic behavior of prices during a period of high inflation. We are able to characterize the price-setting behavior by supermarket chain. The evidence indicates that there is significant heterogeneity in the pricing behavior of individual retailers. Analyzing the source of shocks, results show that even though chain-specific shocks account for a sizable fraction of the observed variation, common (i.e. countrywide) shocks to individual goods and product categories are the most important factors to explain the behavior of prices. In other words, the pricing strategy of retailers seems less important in developing countries to explain microeconomic price dynamics. A Reassessment of Flexible Price Evidence Using Scanner Data: Evidence from an Emerging Economy 2011-08-24T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/641.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc641.pdf Gastón Chaumont Felipe Labbé Miguel Fuentes Alberto Naudon Gastón Chaumont, Miguel Fuentes, Felipe Labbé, Alberto Naudon 2011-08 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc639.pdf Central Bank of Chile Working Papers by Ari Aisen , Roberto Álvarez , Andrés Sagner , Javier Turén Credit Contraction and International Trade: Evidence from Chilean Exporters 2011-08-23T06:21:59Z An important consequence of the recent financial crisis was the collapse of global trade. Using data of Chilean exporting firms, this paper studies the effect of financial constraints on export growth in the aftermath of the crisis. Our results show that both overall financing and export credit were significant determinants of export contraction in the Chilean case. However, the effect is highly heterogeneous. The evidence shows that larger exporters, belonging to industries more dependent on overall credit, have suffered disproportionately more. This has important policy implications, as public policy aiming at stimulating trade credit may not be as effective if overarching credit conditions remain subdued. Credit Contraction and International Trade: Evidence from Chilean Exporters 2011-08-23T06:21:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/639.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc639.pdf Roberto Álvarez Javier Turén Ari Aisen Andrés Sagner Ari Aisen , Roberto Álvarez , Andrés Sagner , Javier Turén 2011-08 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc640.pdf Central Bank of Chile Working Papers by José De Gregorio, Felipe Labbé Copper, the Real Exchange Rate and Macroeconomic Fluctuations in Chile 2011-08-23T06:21:59Z This paper examines the impact of the copper price on macroeconomic performance in Chile. We explore particular features of the Chilean business cycle focusing on economic activity and the real exchange rate. We find that the Chilean economy has become increasingly resilient to copper price shocks in the last twenty-five years, and especially during this last decade. The evidence shows that output volatility has dramatically decreased over the last twenty years, and the contribution of copper price fluctuations to output volatility has also declined. Moreover, the real exchange rate has acted as a shock absorber, and although during the last decade its short-run volatility has increased, its longrun volatility has remained stable and more recently has slightly declined. The decliningimpact of copper prices on the business cycle is due to macroeconomic policies. The evidence shows that a flexible exchange rate, a rule-based fiscal policy, and a flexible inflation targeting regime play a central role in these results. Copper, the Real Exchange Rate and Macroeconomic Fluctuations in Chile 2011-08-23T06:21:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/640.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc640.pdf Felipe Labbé José De Gregorio José De Gregorio, Felipe Labbé 2011-08 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc637.pdf Central Bank of Chile Working Papers by Juan Pablo Medina , Alberto Naudon Labor Market Dyncamics in Chile: the Role of Terms of Trade Shocks 2011-08-19T06:19:59Z In this paper we explore the channels through which the terms of trade affect labor market variables in an emerging economy such as Chile. In doing so, we analyze the cyclical properties of labor market variables and use a structural vector autoregressive model to analyze the empirical responses of variables such as unemployment rate, job finding rate, sectoral employment and sectoral average labor productivity to terms of trade shocks in the case of Chile, which come from two main sources: the mining and the non-mining sector. We then develop a multi-sector model with search frictions that generates fluctuations in the unemployment rate. Using a calibrated version of this model for Chile, we analyze the ability of the model to replicate the observed responses of labor market variables to terms of trade shocks. We find that the model can predict quantitatively the effects of labor market variables to non-mining terms of trade shocks. Although the model is able to obtain responses to mining price changes qualitatively similar to what is estimated in the data, it falls short to the estimated magnitude of reduction in unemployment that follows a rise in mining prices. The presence of very high wage rigidity can help to generate a sharper fall in unemployment after a mining terms of trade rise. Finally, the model remarks a more intense sectoral labor reallocation in response to terms of trade shocks than the amount estimated in the data. Labor Market Dyncamics in Chile: the Role of Terms of Trade Shocks 2011-08-19T06:19:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/637.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc637.pdf Juan Pablo Medina Alberto Naudon Juan Pablo Medina , Alberto Naudon 2011-08 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc638.pdf Central Bank of Chile Working Papers by Sergio Salgado I. Investment Dynamics in a DSGE Model with Heterogeneous Firms and Corporate Taxation 2011-08-19T06:19:59Z In this paper I study a new business cycle fact recently documented by Bachmann and Bayer (2011): the dispersion of the distribution of investment rates across firms is procyclical. Using data from German firm, the authors find a correlation coefficient between the standard deviation of investment distribution and the cyclical component of output of 0.45. They also report a correlation coefficient for US economy of 0.33. Using a model similar to Khan and Thomas's (2003), that is standard to heterogeneous firms literature, I obtain a correlation coefficient of 0.57. In the model I also consider a government sector that collects taxes on corporate profits. In such model, with a corporate tax of 23.5%, which corresponds to German economy, I obtain a correlation coefficient of 0.46 and when I consider a corporate tax rate of 18.79% that corresponds to US economy I find a correlation coefficient of 0.51. Investment Dynamics in a DSGE Model with Heterogeneous Firms and Corporate Taxation 2011-08-19T06:19:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/638.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc638.pdf Sergio Salgado I. Sergio Salgado I. 2011-08 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc635.pdf Central Bank of Chile Working Papers by Ernesto Pastén Time - Consistent Bailout Plans 2011-07-28T17:36:00Z Bailout policy is time-inconsistent, which results in multiple equilibria characterized by too much leverage, high risk correlation and little liquidity holding. I show that a long-run horizon allows the policy-maker to define bailout plans that rule out the worse equilibria. This result contrasts with the standard finding in environments with a unique equilibrium, as in most applications, in which a long-run horizon allows the policy-maker to support superior outcomes in equilibrium. I use this framework to discuss the effectiveness of three prudential policy proposals: too-big-to-fail size caps, taxes on borrowing and liquidity requirements. I also argue that policies alleviating the time-inconsistency of bailouts may generate large welfare gains. In this regard, I discuss three alternatives: policies against the scarcity of liquidity during crises, bailout design, and public debt. Time - Consistent Bailout Plans 2011-07-28T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/635.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc635.pdf Ernesto Pastén Ernesto Pastén 2011-06 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc633.pdf Central Bank of Chile Working Papers by Eduardo López E., Víctor Riquelme P., Ercio Muñoz S. Long - Term Interest Rate and Fiscal Policy 2011-07-28T17:36:00Z The financial crisis of 2008, the subsequent fiscal stimulus, and damage to the fiscal< position -especially in the developed countries-, raised the concerns about their impact on long-term interest rates. Using a stylized model, we establish the link between long-term interest rates and the main fiscal policy variables, such as fiscal deficit and public debt. We estimate a panel data model of the long-term interest rate for the period 1990-2009, considering a sample of 54 emerging and developed economies. We find that, when the fiscal deficit expands by 1%, the long-term interest rate rises between 10 and 12 basis points. When we consider the role of monetary policy and its credibility and fiscal rules as stabilizers of the business cycle, we find that: (i) credibility helps maintain lower interest rate than otherwise, and ii) fiscal rules help attenuate the impact of fiscal deficit on longterm interest rates. Finally, it is found that fiscal policy explained nearly 40% of the long term interest rate for G7 countries during 2007-2010. Long - Term Interest Rate and Fiscal Policy 2011-07-28T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/633.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc633.pdf Víctor Riquelme P. Ercio Muñoz S. Eduardo López E. Eduardo López E., Víctor Riquelme P., Ercio Muñoz S. 2011-06 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc632.pdf Central Bank of Chile Working Papers by Gastón Chaumont, Miguel Fuentes, Felipe Labbé, Alberto Naudón A Reassesment of Flexible Price Evidence Using Scanner Data: Evidence from an Emerging Economy 2011-06-09T06:21:59Z In this paper we use a new database of scanner-level prices for the Chilean economy to characterize the microeconomic behavior of prices during a period of high inflation. We are able to characterize the price-setting behavior by supermarket chain. The evidence indicates that there is significant heterogeneity in the pricing behavior of individual retailers. Analyzing the source of shocks, results show that even though chain-specific shocks account for a sizable fraction of the observed variation, common (i.e. countrywide) shocks to individual goods and product categories are the most important factors to explain the behavior of prices. In other words, the pricing strategy of retailers seems less important in developing countries to explain microeconomic price dynamics. A Reassesment of Flexible Price Evidence Using Scanner Data: Evidence from an Emerging Economy 2011-06-09T06:21:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/632.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc632.pdf Gastón Chaumont Felipe Labbé Alberto Naudón Miguel Fuentes Gastón Chaumont, Miguel Fuentes, Felipe Labbé, Alberto Naudón 2011-06 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc629.pdf Central Bank of Chile Working Papers by Gonzalo Castex Risk Premium and Expectations in Higher Education 2011-05-26T06:19:59Z This paper takes the risk of college participation into context when evaluating the return to college education. College dropout and a higher permanent income shock for those who graduate from college accounts for 51% of the excess return to college education. Using a simple risk premium approach, I reconcile the observed high average returns to schooling with relatively low attendance rates. A high dropout risk has two important effects on the estimated average returns to college education: via selection bias and via risk premium. Risk Premium and Expectations in Higher Education 2011-05-26T06:19:59Z Abstract http://www.bcentral.cl/eng/studies/working-papers/629.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc629.pdf Gonzalo Castex Gonzalo Castex 2011-05 Central Bank of Chile Working Papers http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc628.pdf Central Bank of Chile Working Papers by Gauti B. Eggertsson Fiscal Multipliers and Policy Coordination 2011-05-16T17:36:00Z This paper analyzes the effectiveness of fiscal policy at zero nominal interest rates. I solve a stochastic general equilibrium model with sticky prices assuming that the government cannot commit to future policy. Real government spending increases demand by boosting public consumption. Deficit spending increases demand by generating inflation expectations. I compute multipliers of government spending that calculate by how much each dollar of spending increases output. Both the deficit and the real spending multipliers can be large, but the multiplier of deficit spending depends critically on monetary and fiscal cooperation: it can be large with cooperation and zero without it. The theory suggests one interesting interpretation of why recovery measures-such as fiscal spending, exchange interventions, and large increases in the money supply-had a smaller effect on nominal demand in Japan during the Great Recession (1992-2006) than during the US's Great Depression (1929-1941). In both episodes, the short-term nominal interest rate was close to zero. The theory suggests that part of the difference can be explained by the fact that, while monetary and fiscal policy were coordinated in the US during the Great Depression, they were not in Japan during the Great Recession. The overall conclusion of the paper is that the effect of given policy actions depends crucially on the institutional setup in the economy. Fiscal Multipliers and Policy Coordination 2011-05-16T17:36:00Z Abstract http://www.bcentral.cl/eng/studies/working-papers/628.htm Full text http://www.bcentral.cl/eng/studies/working-papers/pdf/dtbc628.pdf Gauti B. Eggertsson Gauti B. Eggertsson 2011-05 Central Bank of Chile Working Papers