Description

In this paper we present a small macroeconomic model of the Chilean economy. The model comprises four equations that capture the evolution of the main macroeconomic variables, output, inflation, policy interest rate, and the real exchange rate. Analytically, the model is expressed in a way such that only captures convergence paths toward steady state values which are not modeled in this paper, so it is not usable to analyze any shock that might affect the long-run trajectory of any variable of interest in economic policy analysis. We use the model to simulate the dynamic response of the Chilean economy to some external and internal shocks that are of interest for monetary policy purposes.