Identifying Fiscal Policy Shocks in Chile and Colombia

Structural VAR and Structural VEC models were estimated for Chile and Colombia, aiming at identifying fiscal policy shocks in both countries between 1990 and 2005. The impulse responses obtained allow the calculation of a peso-for-peso ($/$) effect on output of a shock to public spending and to the government's net tax revenues, providing a good notion of the incidence of fiscal policy shocks in both countries. When public finances are under control, as they are in Chile, fiscal policy seems to be more effective than when they lack stability and credibility, as seems to be the case of Colombia since the mid nineties.

IDENTIFYING FISCAL POLICY SHOCKS IN CHILE AND COLOMBIA

Structural VAR and Structural VEC models were estimated for Chile and Colombia, aiming at identifying fiscal policy shocks in both countries between 1990 and 2005. The impulse responses obtained allow the calculation of a pesofor- peso ($/$) effect on output of a shock to public spending and to the government's net tax revenues, providing a good notion of the incidence of fiscal policy shocks in both countries. When public finances are under control, as they are in Chile, fiscal policy seems to be more effective than when they lack stability and credibility, as seems to be the case of Colombia since the mid nineties.Identification, Fiscal Policy, SVAR, SVEC

Estimating the NAIRU for Chile

The purpose of this paper is to obtain a set of estimates of the non-accelerating-inflation rate of unemployment (NAIRU) for Chile. Measuring the NAIRU permits building the unemployment gap, which is a complementary measure of activity and output gap, which is used on a regular basis by central banks as another indicator helping in inflation forecasts and policy decision making. Initially, an estimate is obtained based on a purely statistical method (unobserved components) Later, estimates are conducted for both constant and variable NAIRU based on Phillips curve equations. The different estimates yield similar results, indicating that the most likely point estimate for the current NAIRU stands between 7.4% and 8.3%. However, these figures are contained in a confidence interval ranging from 6.5% to 9.7%, reflecting great uncertainty regarding the exact value of NAIRU.

Estimaciones de NAIRU para Chile

The purpose of this paper is to find a set of estimates for the non-accelerating-inflation rate of unemployment ( NAIRU ) for Chile. Measuring the NAIRU permits to build the unemployment gap, which provides a complementary measure of aggregate demand and of the output gap. It is generally used by central banks as part of the set of indicators with which they project inflation and make policy decisions. Initially, an estimate is obtained from a purely statistical method (unknown components). Then calculations of both constant and variable NAIRU are made on the basis of Phillips curve equations. A final measure of NAIRU is obtained, based on an estimated autoregressive vector, identified with long-run restrictions. The various estimations yield similar results and indicate that the most likely point estimate of the current NAIRU is between 7.6% and 8.1%, with a 95% confidence interval that goes from 6.4% to 9.3%. This wide interval gives an idea of the highdegree of uncertainty regarding its point estimation.

Macroeconomics, Monetary Policy and the Central Bank´s Net Worth

This paper makes stochastic projections of the Central Bank of Chile’s (CBCh) balance sheet (stocks and flows) starting from the actual current negative net worth. These projections incorporate the effect on the balance sheet of several macroeconomic variables as well as alternative policy decisions, taking into account the uncertainty and risks inherent in the economy. The article describes and assesses the main causes of the present deficit. In the baseline scenario, the deterministic forecast shows that the Central Bank's net worth will increase slowly to reach positive values after 25 years. However, in the stochastic simulations the Bank's net worth will still be negative 25 years from now, with a 69 percent probability.

Incorporating Financial Sector Risk Into Monetary Policy Models: Application to Chile

This paper builds a model of financial sector vulnerability and integrates it into a macroeconomic framework, typically used for monetary policy analysis. The main question to be answered with the integrated model is whether or not the central bank should include explicitly the financial stability indicator in its monetary policy (interest rate) reaction function. It is found in general, that including distance-to-default (dtd) of the banking system in the central bank reaction function reduces both inflation and output volatility. Moreover, the results are robust to different model calibrations. Indeed, it is more efficient to include dtd in the reaction function with higher coefficient of exchange rate pass through, and with a larger impact of financial vulnerability on the exchange rate, as well as on GDP (or the reverse, there is more effect of GDP on bank’s equity—i.e., what we call endogeneity).