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Capital Controls and Capital Flows in Emerging EconomiesPolicies, Practices, and Consequences$
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Sebastian Edwards

Print publication date: 2007

Print ISBN-13: 9780226184975

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226184999.001.0001

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International Borrowing, Capital Controls, and the Exchange Rate

International Borrowing, Capital Controls, and the Exchange Rate

Lessons from Chile

Chapter:
(p.241) 6 International Borrowing, Capital Controls, and the Exchange Rate
Source:
Capital Controls and Capital Flows in Emerging Economies
Author(s):

Kevin Cowan

José De Gregorio

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226184999.003.0007

This chapter describes Chile's experience with capital account restrictions and exchange rate policy. Chile did not suffer a sudden stop but a current account reversal due to policy reactions and a “sudden start” in capital outflows. The banks in Chile during the 1990s mediate a relatively low share of international debt inflows. In the years after the capital account was fully liberalized and the exchange rate floated, banks have begun playing a significantly larger role in debt inflows. Those countries with fixed and managed exchange rates are more prone to increases in external debt, and capital controls do not play a significant role in decreasing debt inflows. The Chilean experience was the result of a reversal in the current account, induced primarily by a very tight monetary policy and domestic liquidity squeeze, a sharp decline in terms of trade, and a strong defense of the peso.

Keywords:   capital controls, Chile, exchange rate policy, capital outflows, banks, international debt inflows

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