Serie Banca Central, análisis y políticas económicas (artículos)

Los trabajos de investigación que normalmente se publican en cada volumen son versiones revisadas y editadas de documentos presentados en la Conferencia Anual del Banco Central de Chile. Estas reúnen a expertos, investigadores y académicos de bancos centrales y autoridades de política monetaria de numerosos países, con la finalidad de promover y discutir los últimos avances en investigación económica sobre temas macroeconómicos y de economía internacional. No obstante, también se ha publicado en esta colección algunos trabajos de investigación que no fueron parte de dicha conferencia anual, pero por su importancia para el Banco, se resolvió difundirlos en esta serie.


Recent Submissions

Now showing 1 - 20 of 314
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    The international financial system after Covid-19
    (Banco Central de Chile, 2023-08-09) Obstfeld, Maurice
    In March of 2020, international markets seized up with a violence unequaled since the Global Financial Crisis (GFC) nearly a dozen years before. As economies around the world locked down in the face of the potentially deadly but completely novel SARS-CoV-2 virus, stock markets fell, firms and governments scrambled for cash, liquidity strains emerged even in the market for U.S. Treasurys, and capital flows to emerging and developing economies (EMDEs) reversed violently. Once again, the world economy appeared on the brink of collapse—until it was pulled back by monetary and fiscal interventions that outstripped even those of the 2008–2009 Global Financial Crisis.
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    Exchange rate puzzles and policies
    (Banco Central de Chile, 2023-08-09) Itskhoki, Oleg; Mukhin, Dmitry
    What is the optimal exchange rate policy? Should exchange rates be optimally pegged, managed, or allowed to freely float? What defines a freely floating exchange rate? Do open economies face a trilemma constraint in choosing between inflation and exchange rate stabilization, unlike divine coincidence in a closed economy? These are generally difficult questions, as the exchange rate is neither a policy instrument, nor a direct objective of the policy, but rather an endogenous general-equilibrium variable tied by equilibrium relationships in both goods and financial markets. At the same time, equilibrium exchange rate behavior features a variety of puzzles from the point of view of conventional business-cycle models typically used for policy analysis in open economy.
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    International risk spillovers: implications for emerging markets’ monetary policy frameworks with an application to Chile
    (Banco Central de Chile, 2023-08-09) Kalemli-Özcan, Sebnem
    Among the factors behind international spillovers, U.S. monetary policy developments retain a major influence. Such developments drive the global financial cycle as strongly demonstrated by Rey (2013), Miranda-Agrippino and Rey (2020), Miranda-Agrippino and Rey (2021). The dramatic U.S. monetary easing during the early months of the Covid-19 pandemic was the single most important factor for the reversal of capital outflows to emerging markets and developing economies.1 As shown by Kalemli-Özcan (2019), the transmission mechanism for monetary policy spillovers to emerging market economies (EMEs) rests on the effect of U.S. monetary policy on investors’ risk sentiments, as those sentiments are more volatile in the case of EMEs. In Kalemli-Özcan (2019), I show that capital flows to emerging markets are particularly “risk-sensitive.” This creates a challenge unique to the EME policymakers and their monetary policy frameworks.
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    Global drivers and macroeconomic volatility in EMEs: a dynamic-factor, general-equilibrium perspective
    (Banco Central de Chile, 2023-08-09) Bajraj, Gent; Fuentes D., Miguel; García S., Benjamín; Lorca, Jorge; Paillacar, Manuel; Wlasiuk, Juan M.; Fernández, Andrés
    A common view held by academics as well as policymakers assigns an important role to global factors as drivers of fluctuations in economic activity in emerging market economies (EMEs). This follows naturally from the fact that these economies are often small and open to trade in global goods and capital markets, which makes them vulnerable to shocks in these markets. However, the nature of these global forces as well as their transmission mechanism into EMEs continues to be debated and is the subject of an active research area in international macroeconomics. While an influential view postulates a financial origin in the form of a global financial cycle (Miranda-Agrippino and Rey, 2020), others have argued in favor of alternative global forces in the form of fluctuations in commodity prices (Fernández and others, 2017, 2018, 2020), changes in sovereign risks (Longstaff and others, 2011; Aguiar and others, 2016), and a common growth factor among EMEs (Claessens and others, 2012).
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    Sovereign-Debt Crises and Floating-Rate Bonds
    (Banco Central de Chile, 2023-08-09) Aguiar, Mark; Amador, Manuel; Alves Monteiro, Ricardo
    The choice of sovereign-debt maturity in countries at risk of default represents a complex set of competing forces. The tradeoffs reflect the underlying frictions present in international sovereign-debt markets. The primary frictions are the lack of state contingency in debt contracts and the inability of the government to commit to future actions. These generate two forces in terms of maturity choice. The first is that long-term bonds may be a useful tool for a government to hedge shocks to the cost of funds, say arising from business cycle fluctuations. However, the lack of contingency opens the door to default occurring in equilibrium. Because of the government’s inability to commit to future fiscal decisions, bondholders are subject to future dilution of their claims. This generates an opposite force: short-term bonds provide protection from future dilution and, as we shall see, provide better incentives to the government to minimize the costs of default.
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    How important is the commodity supercycle?
    (Banco Central de Chile, 2023-08-09) Fernández, Andrés; Schmitt-Grohé, Stephanie; Uribe, Martín
    World commodity prices are known to display long cycles. These cycles have a periodicity of 20 to 30 years and are called commodityprice supercycles. Figure 1 displays the time paths of eleven commodity prices deflated by the U.S. consumer price index over the period 1960 to 2018. All commodity prices appear to have long cycles in accordance with the supercycle hypothesis. In particular, commodity prices display two peaks post 1960—one in the early 1980s and one in the early 2010s. In the academic and financial-industry literature, the upswing in commodity prices leading to the 1980s peak is typically attributed to the post-World War II reconstruction of Western Europe and Japan and to the cartelization of the crude oil market. The peak in the early 2010s is frequently attributed to the accession of China and other southeast Asian countries to world markets.
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    KFstar and portfolio inflows: a focus on Latin America
    (Banco Central de Chile, 2023-08-09) Burger, John D.; Warnock, Francis E.; Cacdac Warnock, Veronica
    Policymakers faced with volatile capital flows may desire a method to identify the level of flows likely to persist in the medium run. In a series of papers (Burger, Warnock, and Warnock, henceforth BWW, 2018, 2022), we have developed an estimate of the natural or equilibrium level of capital flows (KFstar or KF*) that provides guidance on the likely amount of portfolio inflows countries can expect over a one- to two-year period.
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    Cross-border corporate control: openness and tax havens
    (Banco Central de Chile, 2023-08-09) Aminadav, Gur; Fonseca, Luís; Papaioannou, Elias
    Cross-border corporate control is a major facet of globalisation. In roughly one out of four listed controlled companies in 2012, control was exercised by a foreign entity or family/individual. Controlling—and passive—ownership stakes are often hidden in complex structures, involving pyramids and chains of intermediate firms. Besides, shareholders often use shell companies incorporated in financial offshore centres. As we demonstrate in this paper, even locals use firms in tax-haven jurisdictions as conduits of their (controlling) equity stakes in domestic firms. However, international corporate control is not well-understood due to the esoteric corporate holding schemes and the complex network of equity holdings.
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    The reversal problem: development going backwards
    (Banco Central de Chile, 2023-08-09) Olaberria, Eduardo; Reinhart, Carmen M.
    The Covid-19 pandemic triggered the most synchronous economic downturn in more than a century. Ninety percent of countries posted a decline in real per-capita GDP in 2020, a share that surpassed any other year since 1900, which includes two world wars and the Great Depression of the 1930s.1 The health crisis pushed an estimated 90 million people into extreme poverty.2 We document that, for emerging and developing economies (EMDEs) as a group, the setback in their development markers did not start with the pandemic. Covid-19 deepened and accelerated a troubling trend of economic backsliding that had appeared around half a decade earlier. We call this the Reversal Problem.
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    Independence, credibility, and communication of central banking: an overview
    (Banco Central de Chile, 2021-10) Pastén, Ernesto; Reis, Ricardo
    The institution of central-bank independence is often lauded as a great conquest of the accumulation of knowledge and the sensible setting of policy. The economic literature is filled with arguments for why an independent central bank would lead to better outcomes. To this prior, the experience of the last couple of decades has added the supporting data. Independent central bankers have been, for the most part, able to keep inflation under control despite shocks and macroeconomic volatility. Whether during the Global Financial Crisis, through individual country slumps, or at the trough of the pandemic recession, independent central banks were typically part of the solution rather than part of the problem. Attacks on the independence of a central bank nowadays typically generate a strong pushback from the press and civil society.
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    Public trust and central banking
    (Banco Central de Chile, 2021-10) Marcel Cullel, Mario
    Central bank independence is one of the most remarkable pieces of institutional architecture fostered by economic thinking in the last half century. Theoretical studies in the 1980s stressed central bank independence as a precondition to bringing inflation under lasting control, and support for reform soon spread from academia to policymaking. Professor Kenneth Rogoff was a major contributor to this process, so we are privileged to have him as keynote speaker at this Conference. Central bank independence delivered upon expectations. As the countries with independent central banks grew to nearly 70 in recent years, average world inflation dropped to 4%, from more than 25% 30 years ago. Empirical studies are pretty conclusive on a strong correlation between central bank independence and low and stable inflation after controlling for other variables.
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    Risks to central-bank independence
    (Banco Central de Chile, 2021-10) Rogoff, Kenneth S.
    Central banking today faces a number of existential challenges. On the political side, and particularly after the financial crisis, the public has come to expect central banks to take on a dizzying array of responsibilities, some far beyond their power or remit. These include everything from enhanced financial regulation to quasi-fiscal policy to mitigating economic inequality. Some recent populist proposals appear to be based on the presumption that central banks can issue large quantities of bank reserves indefinitely without any long-term inflationary or tax consequences. On the technocratic side, many central banks struggle with the trend decline in global real interest rates that steepened notably in the aftermath of the financial crisis. This decline has, in many cases, left the monetary authorities with little space to cut policy interest rates in the event of steep recession, much less in a financial crisis, and trying to put the best public face possible on much weaker “alternative monetary instruments,” such as quantitative easing (QE). At the same time, the fact that many “alternative monetary instruments” are in fact forms of fiscal policy—that could be implemented just as well or even better by finance ministries—has made the challenge of preserving centralbank independence against strong political headwinds even harder.
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    The transformation and performance of emerging market economies across the great divide of the global financial crisis
    (Banco Central de Chile, 2021-10) Bordo, Michael D.; Siklos, Pierre
    Before the Global Financial Crisis, a drive towards greater central-bank autonomy and transparency, as part of the achievement of greater central-bank credibility that had begun in the advanced economies (AE), spread to the emerging market economies (EME). This process was greatly enhanced by the adoption of inflation targeting (IT), as analyzed in Bordo and Siklos (2014). Moreover, the adoption of best practices was viewed as a way for emerging market countries especially to “tie their hands” to deliver lower and more stable inflation rates without undue fiscal and/or political influence.
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    Inflation targeting under political pressure
    (Banco Central de Chile, 2021-10) Halac, Marina; Yared, Pierre
    Historically, many emerging economies, particularly in Latin America, battled against persistently high and volatile inflation. Today, emerging economies continue to experience higher inflation than developed ones, and their central banks deviate more frequently from inflation targets. These patterns partly reflect the added political pressure and a lower degree of independence faced by central banks in emerging markets. For example, Aisen and Veiga (2006, 2008) find that inflation is higher and more volatile in countries with a lower quality of political institutions and a higher degree of political instability. By using a narrative approach, Binder (2018) finds that, on average, ten percent of central banks face political pressure and that this pressure is associated with higher inflation and inflation persistence.
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    The fiscal footprint of macroprudential policy
    (Banco Central de Chile, 2021-10) Reis, Ricardo
    Monetary policies leave a fiscal footprint. When the central bank cuts the policy interest rate, this footprint comes through multiple channels: The demand for currency rises, so the central bank prints more banknotes to accommodate it, and this creates seignorage revenues. Inflation unexpectedly rises and this lowers the real value of public debt. Rolling over this debt is cheaper as the price of newly issued debt rises. And finally, economic activity rises, so tax revenues increase and social spending falls.
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    Fiscal inflation and cosmetic defaults in a small open economy
    (Banco Central de Chile, 2021-10) Bianchi, Francesco
    For a small open economy, maintaining a stable exchange rate and moderate levels of inflation is often a goal of primary importance. At the same time, the profession has recognized the tight link between fiscal and monetary policies in determining inflation dynamics. Thus, the goal of a stable exchange rate requires a certain level of coordination between the monetary and fiscal authorities. This paper builds on recent advancements in the literature on monetary-fiscal policy interaction to formalize this idea. We study the origins of fiscal inflation, the possibility of stagflation as a result of policy uncertainty, and the role of default on sovereign debt crises that stem from lack of fiscal discipline. We then use the model to interpret the different periods of the Chilean economic history starting from the 1960s.
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    Central banking with many voices: the communications arms race
    (Banco Central de Chile, 2021-10) Vissing-Jorgensen, Annette
    Around the world, most central banks set policy by committee. This is motivated in part by the idea that groups reach better decisions than individuals and in part by a desire for representation of different geographical areas and economic constituencies in policymaking. The Bank for International Settlements (2009) documents that across central banks, the median number of members on monetary policy boards is eight. The Federal Reserve and the European Central Bank (ECB) have substantially more decision-makers than the median, with 19 members of the Federal Open Market Committee (FOMC) (of which 12 vote at any given time) and 25 members of the ECB’s Governing Council (of which 21 vote at any given time).
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    The three E’s of central-bank communication with the public
    (Banco Central de Chile, 2021-10) Haldane, Andrew; Macaulay, Alistair; McMahon, Michael
    Central banks used to ask, “Shall we communicate this?” Now, as a rule, they ask, “Why wouldn’t we communicate this?” This first wave of the revolution in central-bank communication is giving rise to a second wave. The question increasingly is, “How should we communicate this in a way that engages a broader cross-section of society?” This addresses the challenge laid out by Blinder and others (2008) that “It may be time to pay some attention to communication with the general public.”
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    Central banking with many voices: the communications arms race
    (Banco Central de Chile, 2021-10) Cecchetti, Stephen G.; Schoenholtz, Kermit L.
    The job of central bankers is to use the monetary powers granted to them to promote price stability, sustainable growth, and a stable financial system. They do this in an environment fraught with unavoidable uncertainties. But, in conducting policy, there is one uncertainty that policymakers can and should reduce: the uncertainty they themselves create. Everyone agrees that monetary policymakers should do their best to minimize the noise that their actions add to the environment. When policy is transparent and effective, people in the economy and financial markets respond to the data, not to the policymakers. During the past quarter-century, the evolution of an ever more detailed inflation-targeting framework facilitated a vast improvement in Federal Open Market Committee (FOMC) communication. Over the same period, both the level and uncertainty of inflation have declined. We infer that since the mid-1990s, the U.S. economy has been reaping the benefits of a credible commitment to price stability, including a communications framework that reinforces that commitment.
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    Comfort in floating: taking stock of twenty years of freely floating exchange rate in Chile
    (Banco Central de Chile, 2021-10) Albagli, Elías; Calani Cadena, Miguel Mauricio; Hadzi-Vaskov, Metodij; Marcel Cullel, Mario; Ricci, Luca Antonio
    Chile offers an example of a country that has overcome the fear of floating by reducing balance-sheet mismatches; enhancing financial-market development; and improving monetary, fiscal, and political institutions; while strengthening policy credibility. Under the floating regime, Chile’s economic adjustment to external shocks appears significantly improved, and its exchange-rate passthrough has substantially declined. Our results reinforce the case that moving to a clear and credible floating regime can be associated with a reduction in the fear of floating via economic transformation (like smaller balancesheet mismatches, a larger hedging market, and a lower exchange-rate passthrough).