A Unified Growth Model for Independent Chile

This article analyzes long-term patterns of growth of the Chilean economy. Examining 200 years of data, it shows evidence in favor of using a neoclassical growth model to conduct the empirical analysis. It presents a formal analysis of structural breaks in the Chilean growth process, finding structural changes in 1929 and 1971/1981. A further analysis of the country’s economic history indicates that fiscal policy, external shocks and trade policy are plausible explanations for these breaks. When these variables are included in the empirical model, the hypothesis of no breaks during these 200 years cannot be rejected.Chile, structural breaks, growth, fiscal policies, external shocks

Institutional Arrangements to Determine Loan Repayment in Chile

The major objective of this paper is to investigate institutional arrangements as a determinant of loan repayment in the Chilean financial market. A second aim is to analyze the effects of these arrangements on borrowers’ behavior. Although La Porta et al. (1997, 1998) classify Chile as a French Civil Law country, the law and private arrangements have evolved consistently with the capital market development to protect the rights of the creditors. This is consistent with relatively low rates of bad loans, ranking from 1. 1 to 2. 0 percent in 1993-1997. We examine different variables which may be related to loan repayment: (a) limitations on the access to credit, (b) macroeconomic stability, (c) collection technology, (d) bankruptcy code, (e) information sharing, (f) the judicial system, (g) prescreening techniques and (h) major changes in financial market regulation. Based on the discussion presented in the paper plus regression analyses, we conclude that a satisfactory performance of the Chilean credit market, in terms of loan repayments and credit market development, hinges on a good information sharing system, an advanced collection technology, a good macroeconomic performance, credit market development and major changes in financial market regulation.

On the determinants of the Chilean Economic Growth

This paper presents several methodologies for understanding the Chilean growth process. By using univariate time series representations, we find that the Chilean data is more consistent with exogenous than with endogenous growth models. Growth accounting exercises show that the mild growth rates of the sixties are mainly due to the accumulation of human and physical capital, while the booms of the mid seventies and the one from 1985 until 1998 are mainly due to TFP growth. We also find that among the most important determinants of the evolution of TFP are the evolution of terms of trade, improvements on the quality of capital, and the presence of distortions. In fact, distortions do not only eliminate the positive effects of improvements on the quality of capital, but also precede the evolution of technology shocks and increase their volatility. A dynamic stochastic general equilibrium model that explicitly incorporates the relative price of investment with respect to consumption goods, terms of tra de, and distortionary taxes is able to successfully replicate the impulse-response functions found on the data. This exercise suggests that distortions play a key role in explaining the growth dynamics of the Chilean experience.

Patent Insurance: Towards a More Affordable, Mandatory Scheme?

Even though businesses insure against myriad risks, patent litigation is often excluded from their general commercial liability insurance policy. Companies understand that patent litigation is an expensive ordeal, and some opt for specialized patent insurance. However, most businesses do not carry such protection because it is too costly. This is unfortunate because some studies suggest that patent insurance fosters research and development among small-to-medium sized enterprises. Following this finding, the European Commission called on CJA Consultants to study the feasibility of a mandatory, EU-wide patent insurance scheme in early 2003. In 2006, CJA Consultants concluded that such a scheme was feasible.This Note analyzes the mandatory patent insurance scheme proposed by CJA Consultants and considers whether a similar scheme could be implemented in the United States. First, the Note provides a background on patent insurance. Then, actual policy specimens from a patent insurer are analyzed to explain the differing types of insurance, their costs, and their shortcomings. Ultimately, the CJA Consultants' proposal is analyzed and compared to the identified shortcomings. The Note concludes that a mandatory U.S. patent insurance scheme would fail

A Systemic Approach to Money Demand Modeling

This paper uses a consumer theory-based systemic approach to model the demand for monetary liquid asset holdings. We implement the suggestions and caveats of aggregation theory for the estimation of a demand system for liquid assets (monies) in static, dynamic and time-varying parameters setups. Our results are robust and theoretically consistent with consumer theory restrictions, as system derived from a utility maximizing framework and a well-behaved utility function. In our estimations we find stability of interest-rate and total-expenditure elasticities, in contrast to previous literature. We also document evidence that long (short) maturity rates are associated to less (more) liquid assets and that the vigorous growth of M1 during the last five of years is not accounted for by low interest rates alone. Policy implications are straightforward; there is stable relationship between monies and interest rates, but the former do not respond exclusively to the latter.

Changes in Monetary Policy Conduct and Their Effects on Banking Spreads

This paper explores whether monetary policy and the denomination of its operative instrument affects banks’ intermediation spread in the Chilean economy. After dividing the sample into pre- and post nominalization periods, the evidence shows a positive correlation between the monetary policy interest rate and banking spreads before the nominalization period, but loses significance in the post nominalization period. This is true for rises and cuts of the rate, so there is no evidence of asymmetries. Two additional interesting results are that i) the increase in the sector’s market concentration has prompted a reduction in intermediation spreads, and ii) the volatility of the market interest rate, controlling for the year 1998, generates an increase in them. Finally, it is worth noting that the sensitivity of banking spreads to the interest rate variance (that includes exchange rate depreciation and inflation in UF) has increased strongly during the nominalization period.