Microeconomic Effects of Capital Controls: The Chilean Experience During the 1990s

Central Bank of Chile Working Paper No. 203

41 Pages Posted: 18 Jun 2003

See all articles by Francisco A. Gallego

Francisco A. Gallego

Pontifical Catholic University of Chile - Institute of Economics; Massachusetts Institute of Technology (MIT) - Department of Economics

Leonardo Hernández

Banco Central de Chile

Date Written: February 2003

Abstract

This paper studies the experience with the use of capital controls in Chile during the 1990s. Rather than revisiting previous studies, it complements previous research by providing, for the first time, empirical evidence on some of the microeconomic effects of capital controls, in particular, the unremunerated reserve requirement (URR). By looking at financial statements for a group of 73 Chilean firms during 1986-2001, the paper attempts to identify the effects of the URR on the firms' costs and ways of financing. Chilean firms are grouped by economic sector, size and access to international capital markets. Results show that the effects of the URR are firm specific; for instance, there are striking differences in the response to the URR among firms of different size and those with or without access to international capital markets.

Keywords: Capital controls, financial structure, Chile

JEL Classification: E52, G32

Suggested Citation

Gallego, Francisco A. and Hernández, Leonardo, Microeconomic Effects of Capital Controls: The Chilean Experience During the 1990s (February 2003). Central Bank of Chile Working Paper No. 203, Available at SSRN: https://ssrn.com/abstract=406280 or http://dx.doi.org/10.2139/ssrn.406280

Francisco A. Gallego (Contact Author)

Pontifical Catholic University of Chile - Institute of Economics ( email )

Casilla 76
Correo 17
Santiago
Chile

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

284 Vassar St. Apt. G1
Cambridge, MA 02139
United States
617-577-5890 (Phone)

Leonardo Hernández

Banco Central de Chile ( email )

Agustinas 1180
Santiago
Chile
56-2-670-2618 (Phone)
56-2-670-2106 (Fax)

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