Money Demand: Theory, Evidence, Results

This article critically reviews the economic literature on money demand, stressing empirical results obtained for Chile. The first part of the paper briefly discusses the main analytical approaches to model the demand for money from a historical perspective. Then the role of money is analyzed from the perspective of macroeconomic general-equilibrium theories. This review focuses on five canonical models: money in the utility function, transaction costs, cash in advance, search, and overlapping generations. Finally the paper surveys applied research on money demand, focusing on the empirical counterpart of theoretical models presented in the analytical section (variable selection, specification, and estimation techniques) and the empirical results of 26 studies on money demand in Chile undertaken between 1960 and 2000.

Looking at Chile’s Economic Dvelopment From an International Perspective

This paper examines the relative position of Chile through time and compared with other emerging and industrial economies, using various economic development indicators, particularly over the past two decades. It provides a descriptive analysis, without exploring causalities or testing hypotheses on the economic growth of the country, but it reveals the strengths and weaknesses that serve as the base for growth policy discussion. The comparison of economic development indicators shows that Chile is comparatively strong in macroeconomic stability, commercial and financial integration, quality of institutions, and in the progress of other structural reforms that are manifested in its well-developed capital market and private sector involvement in production. However, when it comes to quality of education, technological innovation efforts, infrastructure quality and quantity, and some social indicators, its performance is poor.

Monetary Policy and Transmission Mechanisms: New Elements for an old Debate

This article begins by reviewing the current state of the arts in monetary transmission, focusing on the empirical evidence for the Chilean case. Then, it highlights two aspects that have not been given much attention in previous studies, namely the evolution of the monetary policy impact on output and prices over the past decade, and its breakdown by sector. A basic uniequational model is estimated, in order to study i) temporary shifts in the effectiveness of monetary policy and ii) shifts in regimes occurred in the late nineties. Then, VAR models are used—similar to those of previous studies—to analyze impulse-response functions. Finally, a comparative analysis is made on the impact of monetary policy on various productive sectors, for which output and price variables are incorporated into the traditional VAR model.