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Short-Term Capital Flows and Economic Crises$
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Stephany Griffith-Jones, Manuel F. Montes, and Anwar Nasution

Print publication date: 2001

Print ISBN-13: 9780198296867

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780198296867.001.0001

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Managing Capital Inflows in Chile

Managing Capital Inflows in Chile

(p.199) 9 Managing Capital Inflows in Chile
Short-Term Capital Flows and Economic Crises

Manuel R. Agosin

Ricardo Ffrench-Davis

Oxford University Press

As private capital inflows resurged in Latin America during the later part of the 1980s, Chile was one of the first countries to attract such foreign capital flows and was also the one to attract the largest supply. Although the reemergence of such was in a way embraced because it relaxed the foreign exchange constraint, the composition and the large amount of new capital flows posed certain problems for the unprepared recipient countries. Such countries were faced with problems of domestic absorption since capital inflows are supposed to result in increases in the investment rate. Policy makers were also faced with dilemmas since the absence of regulations causes the real exchange rate to appreciate but intervention would lead to an increased money supply and inflation control. This chapter examines how massive capital inflows were dealt with in Chile during the 1990s, the policy responses, and the effects that were imposed on the domestic economy.

Keywords:   private capital inflows, Chile, policy responses, inflation, foreign capital flows, foreign exchange, domestic absorption, investment rate, regulation, intervention

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