
Contents
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9.1. Introduction 9.1. Introduction
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9.2. Recent Capital Inflows: Magnitudes and Composition 9.2. Recent Capital Inflows: Magnitudes and Composition
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9.3. The Policy Response and its Effects 9.3. The Policy Response and its Effects
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9.3.1. Inflow management policies 9.3.1. Inflow management policies
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9.3.2 Exchange rate policy 9.3.2 Exchange rate policy
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9.3.3 Effectiveness of measures 9.3.3 Effectiveness of measures
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9.3.4. The strengthening of banking supervision 9.3.4. The strengthening of banking supervision
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9.4. Saving, Investment, and Growth 9.4. Saving, Investment, and Growth
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9.5. Some Policy Lessons of the Chilean Experience 9.5. Some Policy Lessons of the Chilean Experience
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Appendix. Calculating the Implicit Tax in Chilean Disincentives to Capital Inflows Appendix. Calculating the Implicit Tax in Chilean Disincentives to Capital Inflows
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9 Managing Capital Inflows in Chile
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Published:February 2001
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Abstract
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.
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