Countercyclical Fiscal Policy, A Review of the Literature, Empirical Evidence and some Policy Proposals

stabilization, fiscal policy, capital flows, taxation

Some Measures of Financial Fragility in the Chilean Banking System: An Early Warning Indicators Application

There is an ample literature whose main subject is to build models able to anticipate or provide some early warning signals of problematic financial institutions. This article overview these literature in an attempt to detect latent fragility in the Chilean financial system. Most applications in this area estimate some probability model with discrete dependent variables that separate, ex-post, failed or bailed-out institutions from the healthy ones, an exercise that during the nineties is not feasible in the Chilean case. We adopt a simpler approach by estimating a linear reduced form model of determination of past due loans and inter-bank spread as measures of financial fragility, which can be interpreted as probability indicators of credit and liquidity risk. Bank financial ratios and macro variables form our set of explanatory variables. The models estimated in this article intend to capture financial fragility in the context of non-crisis environment, which characterizes the Chilean financial system during the present decade. Although some institutions had left the market, failure or insolvency was not the main cause.

El Mercado de Valores Chileno: Análisis y Propuestas en el Ámbito Tributario

En este trabajo, a partir de un marco tributario que considera tanto los objetivos de la política tributaria de un país como sus efectos, se analizan los distintos impuestos que afectan al mercado de capitales en Chile. Dicho análisis junto a una exhaustiva revisión de la literatura económica en este tema, tanto teórica como empírica, permite plantear un conjunto de propuestas que permitirían reducir las potenciales distorsiones que introducen los impuestos en el mercado de valores en Chile actualmente y harían más eficiente su funcionamiento

El Mercado de Valores Chileno: Análisis y Propuesta en el Ámbito Tributario

En este trabajo, a partir de un marco tributario que considera tanto los objetivos de la política tributaria de un país como sus efectos, se analizan los distintos impuestos que afectan al mercado de capitales en Chile. Dicho análisis junto a una exhaustiva revisión de la literatura económica en este tema, tanto teórica como empírica, permite plantear un conjunto de propuestas que permitirían reducir las potenciales distorsiones que introducen los impuestos en el mercado de valores en Chile actualmente y harían más eficiente su funcionamientoTaxes, Stock Markets

Integración financiera y coordinación macroeconómica en el mercosur.

The objective of this paper is to develop an approximation to the issue of cooperation and coordination in the macroeconomic management and in the integration of financial services in Mercosur. The costs and benefits of a macroeconomic coordination and cooperation framework, such as a monetary union in Mercosur, is presented. The macroeconomic performance in the Mercosur area is evaluated using the Maastricht convergence criteria. This paper shows that, even though there have been achievements in inflation and fiscal discipline, many countries don’t reach the convergence criteria established for exchange rate and interest rate. Neither, the general economic conditions needed for an optimal currency area are met. This work also analyzes the financial regulation principles that these countries need to share to move forward towards financial integration. We conclude, that in the near future, it seems impossible to achieve full coordination neither in macroeconomic policy nor complete harmonization in financial regulation. Nonetheless, the paper suggests principles and concrete actions that could contribute to the advance in these areas.

Diagnóstico, Evaluación y Propuesta de Desarrollo del Mercado de Derivados en Chile

Derivados, Chile, Desarrollo de Mercado

Economías de Escala y Economías de Ámbito en el Sistema Bancario Chileno

Este estudio se focaliza en la eficiencia de costos del sistema bancario chileno. Se encuentra evidencia a favor de la existencia de economías de escala en bancos de tamaño pequeño y mediano, no así para los bancos grandes. La inexistencia de evidencia a favor de las economías de ámbito no respalda la creencia usual de que un supermercado financiero es necesariamente más eficiente. Con todo, las nulas o acotadas ganancias de eficiencia que se pueden obtener al aumentar la escala de producción o la composición de la canasta de productos ofrecida, son consistentes con una industria bancaria chilena operando eficientemente, en términos de costos, durante la década de los noventa. La principal fortaleza de este resultado es que se deriva de la estimación de una función de costos flexible, la cual no impone un sesgo hacia deseconomías de escala como es el caso de una función de costos translogarítmica. Además, nuestros resultados son robustos a distintas combinaciones de la canasta de servicios financieros que ofrecen los bancos. Finalmente, entre otros resultados, nuestro estudio respalda el argumento de que los bancos que mantuvieron deuda subordinada aumentaron su eficiencia, en términos de costos, una vez extinguida dicha obligación.

Market Discipline in Depositors’ Behavior and the Role of Risk-Rating Agencies: The Case of Chile

This study re-examines the evidence of market discipline in depositors’ behavior in the Chilean banking system, and analyzes the role of risk-rating agencies in complementing the information available to the market for evaluating bank solvency in Chile. With that in mind, we use data on deposits by size and institutional sector, effective interest rates on time deposits, a set of indicators that reflect the solvency of banks, and the risk rates of bank-issued fixed-income securities. Our results for Chile show that the empirical evidence about market discipline tends to be stronger and more robust when measured by the interest rate, as opposed to the rate of growth of time deposits. Our empirical assessment regarding the role of risk-rating agencies in disseminating relevant information that promotes market discipline is inconclusive. On the one hand, we find some evidence in favor of the hypothesis that the analytical contribution of these entities cannot be replaced by more direct indicators of bank solvency, which can be constructed with publically available information. On the other, we find other evidence that tend to weaken the previous hypothesis.

Capital Account Regulations and Macroeconomic Policy: Two Latin American Experiences

A resurgence of perceived opportunities by international investors has resulted in a new policy debate regarding the regulation of capital flows into certain South American countries. The integrationist camp defends totally open markets on the grounds that they result in a more efficient financial sector, greater asset diversification, and other benefits, while those in the isolationist camp support regulating capital inflows on the grounds that they generate macroeconomic instability and reduce the effectiveness of monetary policy. Noting that there are both costs and benefits associated with external capital flows, Guillermo Le Fort V., international director of the Central Bank of Chile, and Carlos Budnevich L., manager of financial analysis for the Central Bank of Chile, argue against both extremes, opting instead for a policy falling somewhere between the two. An intermediate policy of gradual and limited financial integration has been adopted in Chile and Colombia, two countries experiencing capital account surpluses. Le Fort and Budnevich examine the macroeconomic and financial results during the 1990s of the countries' policies regarding external capital accounts. In the early 1980s the Chilean financial system was wracked by insolvency that was deepened by recession. By 1983 volatile international capital inflows, resulting from the removal of restrictions to such flows, had precipated a widespread crisis. Having weathered this experience, Chile's financial institutions are cautious and concerned about maintaining moderate current account deficits. Policies to accomplish this goal include a targeted range for the medium-term current account deficit, foreign exchange market and capital account regulations, and a limit to the degree of integration of external and domestic markets. The authors note, however, that the reserve requirement cannot stem currency appreciation, which has averaged about 4 percent per year. They also conclude that capital account regulations have not impaired the financial system. "In fact, despite the regulations, the financial system and the capital markets have achieved very significant development in Chile over the past few years."