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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

(p.241) 6 International Borrowing, Capital Controls, and the Exchange Rate
Capital Controls and Capital Flows in Emerging Economies

Kevin Cowan

José De Gregorio

University of Chicago Press

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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