Journal Economía Chilena (The Chilean Economy)

Articles
Current Account and External Financing Kevin Cowan L. /Sebastián Edwards F./ Rodrigo Valdés P. This article summarizes the most salient aspects of papers presented at the Central Bank of Chile’s Tenth Annual Conference “Current Account and External Financing” held in November 2006 and soon to be edited into an upcoming book. Many works were included oriented to improve understanding of recent trends and behavior of international financial markets and emerging economies participating in said markets. The papers, that cover both theoretical and empirical aspects, contribute elements to the comprehension of macroeconomic management in a small open economy, taking into account the main changes observed in recent years in matters relating with financial integration.
Stocks, Flows and Valuation Effects of Foreign Assets and Liabilities: Do they Matter? Alfredo Pistelli M. / Jorge Selaive C. / Rodrigo Valdés P. During the last few years, large holdings of foreign assets and liabilities along with an increasing relevance of the valuation effects —capital gains or losses—have characterized global financial integration. This paper presents an empirical assessment of the implications of stocks, flows and valuation adjustments in external crises, sovereign credit ratings and the long-run dynamics of real exchange rates (RER), in both industrial and developing economies. We find that foreign assets and liabilities are rather distinctive external holdings with different implications in the occurrence of an external crisis. Valuation adjustments have an impact on crises, although quantitatively not very large. Portfolio liabilities (particularly equity) increase the probability of current account reversals, while the likelihood of sudden stops increases with foreign direct investment assets. In the case of sovereign credit ratings, we find a noteworthy effect of the stock and flows of FDI liabilities on improving sovereign ratings. Finally, as for the RER, gross assets and liabilities appear equally important, but components of external holdings have considerably different effects. While the cumulative current account is associated with real depreciation, the valuation effect is strongly linked with real currency appreciations in developing economies.
Financial Diversification and Sudden Stops Kevin Cowan L. / José De Gregorio R./Alejandro Micco A. / Christopher Neilson M. Recent literature on sudden stops analyses the sharp and varied capital account reversals experienced by many emerging market economies. This paper claims that more information can be extracted from the behavior of gross capital flows than from their net results. It emphasizes the fact that, while one economy ’s sudden stop can reveal exclusion from the international financial markets, another can be making adjustments to its investment portfolio causing a sudden start, and both produce the same net effect on the capital account. We present a simple model that rationalizes this empirical fact and its relationship with the economy’s financial diversification.
What Drives the Current Account in Commodity-Exporting Countries? The Cases of Chile and New Zealand Juan Pablo Medina G. / Anella Munro / Claudio Soto G. This paper uses a DSGE model to explore what factors explain current account developments in Chile and New Zealand, two small open economies that are intensive commodity exporters. The model estimation shows that investment-specific shocks, foreign financial changes, and foreign demand shocks account for the bulk of the variation in the current accounts of the two countries. In New Zealand, fluctuations in commodity export prices have also been important. Counterfactual experiments indicate that (i) a peso denomination of the Chilean external debt would reduce the impact of external shocks on domestic variables; and (ii) changes in the degree of monetary policy aggressiveness in New Zealand offers little scope for modifying the exchange rate and current account dynamics.
Research Notes
Política Monetaria, Precios de Activos y Estabilidad Financiera: Una Revisión de la Literatura J. Rodrigo Fuentes S./Marcelo Ochoa C.
Estimación de la Probabilidad de Recesión en Estados Unidos Wildo González P./Alfredo Pistelli M.
Funcionamiento del Mercado Tarjetas de Crédito y Debate sobre Tarifas de Intercambio Patricia Guajardo F./Sergio Rodríguez E.
Books review
Investor Protection and Corporate Governance: Firm-Level Evidence Across Latin America Borja Larrain C.
Natural Resources: Neither Curse Nor Destiny Roberto Álvarez E.
Publications Review
Catastro de publicaciones recientes y resúmenes de artículos seleccionados

Current Account and External Financing
Kevin Cowan L. /Sebastián Edwards F./ Rodrigo Valdés P.

This article summarizes the most salient aspects of papers presented at the Central Bank of Chile’s Tenth Annual Conference “Current Account and External Financing” held in November 2006 and soon to be edited into an upcoming book. Many works were included oriented to improve understanding of recent trends and behavior of international financial markets and emerging economies participating in said markets. The papers, that cover both theoretical and empirical aspects, contribute elements to the comprehension of macroeconomic management in a small open economy, taking into account the main changes observed in recent years in matters relating with financial integration.

Stocks, Flows and Valuation Effects of Foreign Assets and Liabilities: Do they Matter?
Alfredo Pistelli M. / Jorge Selaive C. / Rodrigo Valdés P.

During the last few years, large holdings of foreign assets and liabilities along with an increasing relevance of the valuation effects —capital gains or losses—have characterized global financial integration. This paper presents an empirical assessment of the implications of stocks, flows and valuation adjustments in external crises, sovereign credit ratings and the long-run dynamics of real exchange rates (RER), in both industrial and developing economies. We find that foreign assets and liabilities are rather distinctive external holdings with different implications in the occurrence of an external crisis. Valuation adjustments have an impact on crises, although quantitatively not very large. Portfolio liabilities (particularly equity) increase the probability of current account reversals, while the likelihood of sudden stops increases with foreign direct investment assets. In the case of sovereign credit ratings, we find a noteworthy effect of the stock and flows of FDI liabilities on improving sovereign ratings. Finally, as for the RER, gross assets and liabilities appear equally important, but components of external holdings have considerably different effects. While the cumulative current account is associated with real depreciation, the valuation effect is strongly linked with real currency appreciations in developing economies.

Financial Diversification and Sudden Stops
Kevin Cowan L. / José De Gregorio R./Alejandro Micco A. / Christopher Neilson M.

Recent literature on sudden stops analyses the sharp and varied capital account reversals experienced by many emerging market economies. This paper claims that more information can be extracted from the behavior of gross capital flows than from their net results. It emphasizes the fact that, while one economy ’s sudden stop can reveal exclusion from the international financial markets, another can be making adjustments to its investment portfolio causing a sudden start, and both produce the same net effect on the capital account.
We present a simple model that rationalizes this empirical fact and its relationship with the economy’s financial diversification.

What Drives the Current Account in Commodity-Exporting Countries? The Cases of Chile and New Zealand
Juan Pablo Medina G. / Anella Munro / Claudio Soto G.

This paper uses a DSGE model to explore what factors explain current account developments in Chile and New Zealand, two small open economies that are intensive commodity exporters. The model estimation shows that investment-specific shocks, foreign financial changes, and foreign demand shocks account for the bulk of the variation in the current accounts of the two countries. In New Zealand, fluctuations in commodity export prices have also been important. Counterfactual experiments indicate that (i) a peso denomination of the Chilean external debt would reduce the impact of external shocks on domestic variables; and (ii) changes in the degree of monetary policy aggressiveness in New Zealand offers little scope for modifying the exchange rate and current account dynamics.

Research Notes

Política Monetaria, Precios de Activos y Estabilidad Financiera: Una Revisión de la Literatura
J. Rodrigo Fuentes S./Marcelo Ochoa C.

Estimación de la Probabilidad de Recesión en Estados Unidos
Wildo González P./Alfredo Pistelli M.

Funcionamiento del Mercado Tarjetas de Crédito y Debate sobre Tarifas de Intercambio
Patricia Guajardo F./Sergio Rodríguez E.

Investor Protection and Corporate Governance: Firm-Level Evidence Across Latin America
Borja Larrain C.

Natural Resources: Neither Curse Nor Destiny
Roberto Álvarez E.

Catastro de publicaciones recientes y resúmenes de artículos seleccionados

Banco Central de Chile

Revista Economía Chilena

Published Issues