Most financial instruments in Chile are indexed, and the central bank influences the level of domestic real rates mainly through open market operations in its indexed instruments.
The reserve requirement applies without interest for a one-year period, after which the central bank returns the funds.
Another factor may have been a deterioration in the outlook for the peso as the current account went further into deficit, owing in large part to a significant deterioration in Chile’s terms of trade.
Average nominal interest rates in Chile for terms of 30–89 days, deflated by inflation in the preceding 12-month period. (No data are available for offshore peso interest rates.) Alternative deflators (e.g., an average of the preceding and succeeding quarters’ inflation) produce similar results.
This assumption that ex ante views are reasonably well reflected by ex post outturns is quite strong. Further, ex post movements in exchange rates can be quite abrupt, so that the adjusted interest rate differentials calculated in this way can exhibit significant volatility.
Ineffective controls on capital inflows might also be expected to affect the parallel foreign exchange market, which was legalized in April 1990 for all but a specified range of transactions; however, official data on parallel market rates are available only since 1993.
A crawling peg policy was followed until 1991. In June 1991, however, a market-determined regime was introduced, based on the trading of certificates denominated in U.S. dollars arising from export and other foreign exchange receipts that could be exchanged for foreign exchange to make external payments. The central bank continued to prevent the exchange rate from appreciating past a certain point, however, by setting a floor price for repurchase of the certificates before their one-year maturity at a 12.5 percent discount.
Certain exemptions from the deposit requirement were granted, mainly for credits associated with imports of capital goods, as well as specific short-term loans and credits.
In addition to these tightened restrictions, a managed floating exchange regime was introduced in January 1994, with the peso being allowed to float within a 14 percentage point band. In 1994, the midpoint of this band (in peso-U.S. dollar terms) was expected to increase by 11 percent during the year.
The increase in volatility in the differential since December arises because actual ex post exchange rates are used as a proxy for the forward expectations, and so discrete changes in the exchange rate are reflected in large changes in the adjusted interest rate differential.
In February-May 1994, these ringgit funds were also included in the eligible liability base for the calculation of required reserves, resulting in a negative effective interest rate on these balances.
This parallel rate is presently quoted by currency dealers in the United States (Washington, D.C. and Miami). The dissemination of information on black market operations is prohibited in Venezuela. The rate prevailing for transactions in the parallel market operating in Cucuta, at the border with Colombia, and re-ported by Reuters, ranged between Bs 220 and Bs 240 per U.S. dollar in early June 1995.
Recent Occasional Papers of the International Monetary Fund
131. Capital Account Convertibility: Review of Experience and Implications for IMF Policies, by staff teams headed by Peter J. Quirk and Owen Evans. 1995.
130. Challenges to the Swedish Welfare State, by Desmond Lachman, Adam Bennett, John Green, Robert Hagemann, and Ramana Ramaswamy. 1995.
129. IMF Conditionality: Experience Under Stand-By and Extended Arrangements. Part II: Background Papers. Susan Schadler, Editor, with Adam Bennett, Maria Carkovic, Louis Dicks-Mireaux, Mauro Mecagni, James H.J. Morsink, and Miguel A. Savastano. 1995.
128. IMF Conditionality: Experience Under Stand-By and Extended Arrangements. Part I: Key Issues and Findings, by Susan Schadler, Adam Bennett, Maria Carkovic, Louis Dicks-Mireaux, Mauro Mecagni, James H.J. Morsink, and Miguel A. Savastano. 1995.
127. Road Maps of the Transition: The Baltics, the Czech Republic. Hungary, and Russia, by Tapio O. Saavalainen, Biswajit Banerjee, Mark S, Lutz. Thomas Krueger, Vincent Koen, and Michael Marrese. 1995.
126. The Adoption of Indirect Instruments of Monetary Policy, by a Staff Team headed by William E. Alexander. Tomás J.T. Baliño, and Charles Enoch and comprising Francesco Caramazza, George Iden, David Marston, Johannes Mueller, Ceyla Pazarbasioglu, Marc Quintyn, Matthew Saal, and Gabriel Sensen-brenner, 1995.
125. United Germany: The First Five Years—Performance and Policy Issues, by Robert Corker, Robert A. Feldman, Karl Habermeier, Hari Vittas, and Tessa van der Willigen. 1995.
124. Saving Behavior and the Asset Price “Bubble” in Japan: Analytical Studies, edited by Ulrich Baumgartner and Guy Meredith. 1995.
123. Comprehensive Tax Reform: The Colombian Experience, edited by Parthasarathi Shome. 1995.
122. Capital Flows in the APEC Region, edited by Mohsin S. Khan and Carmen M. Reinhart. 1995.
121. Uganda: Adjustment with Growth, 1987–94, by Robert L. Sharer, Hema R. De Zoysa, and Calvin A. McDonald. 1995.
120. Economic Dislocation and Recovery in Lebanon, by Sena Eken, Paul Cashin, S. Nuri Erbas, Jose Martelino, and Adnan Mazarei. 1995.
119. Singapore: A Case Study in Rapid Development, edited by Kenneth Bercuson with a staff team comprising Robert G. Carling, Aasim M. Husain, Thomas Rumbaugh, and Rachel van Elkan. 1995.
118. Sub-Saharan Africa: Growth, Savings, and Investment, by Michael T. Hadjimichael, Dhaneshwar Ghura. Martin Mühleisen, Roger Nord, and E. Murat Uçer. 1995.
117. Resilience and Growth Through Sustained Adjustment: The Moroccan Experience, by Saleh M. Nsouli, Sena Eken, Klaus Enders, Van-Can Thai, Jörg Decressin, and Filippo Cartiglia, with Janet Bungay. 1995.
116. Improving the International Monetary System: Constraints and Possibilities, by Michael Mussa, Morris Goldstein. Peter B. Clark, Donald J. Mathieson, and Tamim Bayoumi. 1994.
115. Exchange Rates and Economic Fundamentals: A Framework for Analysis, by Peter B. Clark. Leonardo Bartolini, Tamim Bayoumi, and Steven Symansky. 1994.
114. Economic Reform in China: A New Phase, by Wanda Tseng, Hoe Ee Khor, Kalpana Kochhai, Dubravko Mihaljek, and David Burton. 1994.
113. Poland: The Path to a Market Economy, by Liam P. Ebrill, Ajai Chopra, Charalambos Christofides, Paul Mylonas, lnci Otker, and Gerd Schwartz. 1994.
112. The Behavior of Non-Oil Commodity Prices, by Eduardo Borensztein, Mohsin S. Khan, Carmen M. Reinhart, and Peter Wickham. 1994.
111. The Russian Federation in Transition: External Developments, by Benedicte Vibe Christensen, 1994.
110. Limiting Central Bank Credit to the Government: Theory and Practice, by Carlo Cottarelti. 1993.
109. The Path to Convertibility and Growth: The Tunisian Experience, by Saleh M. Nsouli, Sena Eken, Paul Duran, Gerwin Bell, and Zühtü Yücelik. 1993.
108. Recent Experiences with Surges in Capital Inflows, by Susan Schadler, Maria Carkovic, Adam Bennett, and Robert Kahn. 1993.
107, China at the Threshold of a Market Economy, by Michael W. Bell, Hoe Ee Khor, and Kalpana Kochhar with Jun Ma, Simon N’guiamba, and Rajiv Lall. 1993.
106. Economic Adjustment in Low-Income Countries: Experience Under the Enhanced Structural Adjustment Facility, by Susan Schadler, Franek Rozwadowski, Siddharth Tiwari, and David O. Robinson. 1993.
105. The Structure and Operation of the World Gold Market, by Gary O’Callaghan. 1993.
104. Price Liberalization in Russia: Behavior of Prices, Household Incomes, and Consumption During the First Year, by Vincent Koen and Steven Phillips. 1993.
103. Liberalization of the Capital Account: Experiences and Issues, by Donald J. Mathieson and Liliana Rojas-Suárez. 1993.
102. Financial Sector Reforms and Exchange Arrangements in Eastern Europe. Part I: Financial Markets and Intermediation, by Guillermo A. Calvo and Manmohan S. Kumar. Part II: Exchange Arrangements of Previously Centrally Planned Economies, by Eduardo Borensztein and Paul R. Masson. 1993.
101. Spain: Converging with the European Community, by Michel Galy, Gonzalo Pastor, and Thierry Pujol. 1993.
100. The Gambia: Economic Adjustment in a Small Open Economy, by Michael T. Hadjimichael, Thomas Rumbaugh, and Eric Verreydt. 1992.
99. Mexico: The Strategy to Achieve Sustained Economic Growth, edited by Claudio Loser and Eliot Kalter. 1992.
98. Albania: From Isolation Toward Reform, by Mario I. Blejer, Mauro Mecagni, Ratna Sahay, Richard Hides, Barry Johnston, Piroska Nagy, and Roy Pepper. 1992.
97. Rules and Discretion in International Economic Policy, by Manuel Guitián. 1992.
96. Policy Issues in the Evolving International Monetary System, by Morris Goldstein, Peter Isard, Paul R. Masson, and Mark P. Taylor. 1992.
95. The Fiscal Dimensions of Adjustment in Low-Income Countries, by Karim Nashashibi, Sanjeev Gupta, Claire Liuksila, Henri Lorie, and Walter Mahler. 1992.
94. Tax Harmonization in the European Community: Policy Issues and Analysis, edited by George Kopits. 1992.
93. Regional Trade Arrangements, by Augusto de la Torre and Margaret R. Kelly. 1992.
92. Stabilization and Structural Reform in the Czech and Slovak Federal Republic: First Stage, by Bijan B. Aghevli, Eduardo Borensztein, and Tessa van der Willigen. 1992.
91. Economic Policies for a New South Africa, edited by Desmond Lachman and Kenneth Bercuson with a staff team comprising Daudi Ballali, Robert Corker, Charalambos Christofides, and James Wein. 1992.
90. The Internationalization of Currencies: An Appraisal of the Japanese Yen, by George S. Tavlas and Yuzuru Ozeki. 1992.
89. The Romanian Economic Reform Program, by Dimitri G. Demekas and Mohsin S. Khan. 1991.
88. Value-Added Tax: Administrative and Policy Issues, edited by Alan A. Tait. 1991.
87. Financial Assistance from Arab Countries and Arab Regional Institutions, by Pierre van den Boogaerde. 1991.
86. Ghana: Adjustment and Growth, 1983–91, by Ishan Kapur, Michael T. Hadjimichael, Paul Hilbers, Jerald Schiff, and Philippe Szymczak. 1991.
85. Thailand: Adjusting to Success—Current Policy Issues, by David Robinson, Yangho Byeon, and Ranjit Teja with Wanda Tseng. 1991.
84. Financial Liberalization, Money Demand, and Monetary Policy in Asian Countries, by Wanda Tseng and Robert Corker. 1991.
83. Economic Reform in Hungary Since 1968, by Anthony R. Boote and Janos Somogyi. 1991.
82. Characteristics of a Successful Exchange Rate System, by Jacob A. Frenkel, Morris Goldstein, and Paul R. Masson. 1991.
Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publication Services.