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We use the theory of learning in games to show that no-trade results do not require that gains from trade are common knowledge nor that play is a Nash equilibrium. [ABSTRACT FROM AUTHOR]

This paper revisits the question of whether NAFTA contributed to the productivity convergence between Mexico and the US. It introduces improved procedures for generating total factor productivity (TFP) data and applies new and more appropriate econometric methods. With these refinements, the paper provides some counter-evidence to the previous literature's findings of technology convergence toward a smaller gap level and NAFTA's positive effect on it. Our main result suggests an increasing TFP gap level, while some robustness checks, although not documenting increasing gaps, weaken the claim of the previous literature. The paper also applies a difference-in-difference approach and finds no evidence of sizeable effects of NAFTA. [ABSTRACT FROM AUTHOR]

This paper analyzes the evolution of fear of floating (FOF) and its effect on output in Chile, Colombia and Mexico. It shows that there has been a gradual rise in exchange-rate volatility as the period of floating lengthens in each country. The paper analyzes the implications of this evolution for the behavior of output. It finds that the reduction of FOF has tended to decrease output volatility in Chile. However, the opposite phenomenon has happened in Mexico, while the results for Colombia are ambiguous. [ABSTRACT FROM AUTHOR]

The first part of this paper compares the volume and scientific productivity of Business Administration and Economics in Chile with the rest of scientific disciplines at the national and international levels. Given that scientific productivity is heterogeneous among different disciplines, the comparisons utilize an indicator that measures their impact relative to the world in the same field. The second part of the paper compares the amounts of public resources allocated to research in the different fields and discusses their relative efficiency in Chile. [ABSTRACT FROM AUTHOR]

This paper provides an empirical assessment on the impact of air pollution, specifically the bad scents produced by heavy industries and industries associated to the production of fish flour on the population's economic welfare of Concepción-Talcahuano, Chile. The paper applies an indirect method of environmental valuation known as the model of hedonics prices (Rosen, 1974). This approach has been broadly used in urban and environmental economics. Tile results from this paper reveal that there is a negative effect from bad scents on the price of housing and goes further by carrying out an exercise on the economic effect in a representative housing. [ABSTRACT FROM AUTHOR]

Convergence tests implicitly test the unit root hypothesis for per capita income. Although the statistics do not have critical values under the null hypothesis most papers on this subject use them, with the corresponding problems for inference. This paper determines the existence of convergence in GDP levels and income across the regions of Chile using the traditional tests and also recent unit root tests for panel data that allow for correct inferences. We also analyze convergence in dispersion, evaluating the presence of asymmetries or the formation of regional "clubs" using nonparametric tests. Our main conclusions are: (1) the evidence supports the hypothesis of absolute β convergence in both per capita GDP and income; (2) the convergence rate is higher for income than for GDP; (3) the conditional convergence rate increases when we control for the share of mining on the regional productive structure; (4) the data do not support the existence of convergence clubs; and (5) there is no clear evidence of G convergence. [ABSTRACT FROM AUTHOR]

Chile has exhibited sharp cyclical and trend variation in its GDP and TFP growth rates during the last half century. This paper presents new estimates of the sources of Chile's growth and new measures for factor inputs and TFP during 1960-2005. Capital series are adjusted by utilization and labor employment series by hours worked and labor quality measures. Using a Cobb-Douglas function, the paper presents eight series for TFP based on alternative combinations of input measures. Three alternative cyclical measures for GDP suggest that the full period can be divided into three sub-periods of similar length, with similar cyclical features, and that coincide closely with distinct historical eras: 1960-1973, 1974-1989, and 1990-2005. Across the latter time spans, a negative relation between the first and second moments of GDP growth is confirmed, consistent with international experience. This paper also reports econometric evidence on the behavior of Chile's TFP during 1960-2005. TFP dynamics are shaped by cyclical variables (the terms of trade and real exchange rate undervaluation) and structural policy variables (macroeconomic stabilization and microeconomic reform progress), as well as positive interaction effects between macro performance and micro policies. [ABSTRACT FROM AUTHOR]

Chile's average per capita CDP growth of 4.1% during 1991-2005 was significantly higher than average world growth during the same period and was a strong break from its own past. How much of Chile's recent growth is trend growth and how much is cyclical, influenced largely by external conditions? Which are the main determinants of Chile's long-term growth and cyclical fluctuations, according to the recent empirical literature? Which are the country's main growth strengths and weaknesses, and, based on the latter, which are the policy reforms advocated by recent technical studies and campaign proposals? This review article addresses the latter questions, starting with the facts about Chile's average growth and growth volatility at the aggregate, regional, and economic-sector level. Then the paper surveys trend growth studies for Chile that range from decomposition by sources of growth to econometric and simulation studies of deep growth determinants, based on international panel-data and national time-series evidence, and on research focused on individual reforms. Studies on short-term output fluctuations and cyclical recoveries in Chile, also comprising cross-country and national time-series evidence, are presented next. This issue of Cuadernos publishes six new, relevant research papers on Chile's growth, which are briefly introduced. Then the paper reviews selectively growthenhancing policy proposals that have been put forward by academic authors, international organizations, and presidential candidates in their 2005 campaign programs. An epilogue with brief thoughts about Chile's growth potential and policy reform challenges closes the paper. [ABSTRACT FROM AUTHOR]

This paper uses an intertemporal model of public finances to show that political instability can cause taxes to be tilted to the future, resulting in a fiscal deficit that is suboptimal and only weakly sustainable (in the sense of Quintos). This occurs because political instability gives the government an incentive to implement a myopic fiscal policy in order to increase its chances of remaining in office. The government achieves this by delaying taxes (or advancing spending) in order to buy political support, which in turn causes an upward trend in the deficit process and a financial crisis. Using annual data for Chile for the 1833-1999 period, we present statistical test results that support the model. [ABSTRACT FROM AUTHOR]

This paper focuses on women's participation in the Chilean labor market at a regional level. Traditional methods use region-by-region analyses based on assumptions that perturbances are uncorrelated across regions and, most often, that they share identical determinants. Our research shows that both assumptions are inadequate for describing the data. We thus propose a full-information estimator based on a combination of seemingly unrelated regressions (SURE) and Logit techniques. [ABSTRACT FROM AUTHOR]

This paper analyses the causes of the unusual drop in electricity consumption in households in Chile during 2008. Changes in income, the price of energy and the price of the substitute explain 8% of the actual drop in consumption. Over 50% of the fall is explained by two of the measures taken by the government: the energy-saving campaign and the planned reduction in the nominal voltage. Other measures included electricity saving rebates and changing the daylight saving time. Had the authority not taken these measures the price of electricity would have had to rise 15% more to induce a similar reduction of household's consumption. [ABSTRACT FROM AUTHOR]

In the survey analysis, the missing data problem can be managed by using Multiple Imputation (MI) methods. In this paper we show the empirical application of MI methods to the financial variables included in Chile's Social Protection Survey 2004. Based on a brief review of MI methods we conclude that Multivariate Normal one is more appropriate for our case. In addition, we consider two empirical adjustments: (1) use of the variables in their logistic versions, and (2) implementation of the method by groups of individuals. Our results show that both adjustments improves the performance of the MI method. [ABSTRACT FROM AUTHOR]

This paper examines the Additional Worker Effect in Argentina. We conclude that such effect exists, that it is large and that it is highly persistent even when using a wide array of controls in the regressions. It is also observed that spouses of working heads who become unemployed return to formal or informal employment with more intensity. We do not find evidence that impacts on spouse unemployment. [ABSTRACT FROM AUTHOR]

The economic policies implemented in the U.S. economy and other industrial nations during the years preceding the recent financial crisis have been strongly criticized for being too "liberal" regarding the functioning and regulation of markets. There are also those who question the vision and responsibility of the regulatory bodies. Furthermore, the crisis triggered criticism from some economists--led by Nobel prize winner Paul Krugman--with respect to the research agenda followed in the field of macroeconomics during the past thirty years. Specifically, these critics affirm that the theories and models based on rational expectations were incapable of both predicting the crisis and offering solutions to it. This paper questions the above charges. It mentions that (based on the same theoretical approaches that are now being criticized) several articles have alerted about the risks that were brewing in the U.S. economy. If there is something to criticize, it would be the models based on the New Keynesian Synthesis which, just as some decades ago, largely trusted that the economic cycle could be tackled using simple rules of monetary policy. [ABSTRACT FROM AUTHOR]

The current global recession has cast doubts about the work of macroeconomists, the usefulness of their theories and their capacity to anticipate and deal with crises. This paper discusses that, while incapable of dealing with all the complexities of the real world, models do help to interpret the economic reality and propose economic policy recommendations. It also claims that, although crises are unpredictable, it is necessary to continue searching for early warnings and policies to try to prevent them and mitigate their propagation and amplification. Finally, it emphasizes that, although the initial shock of the current crisis was similar to the one of the Great Depression, its subsequent development has been essentially different, in particular in emerging economies. This proves that the economies are much stranger, and the policies applied have gone in the proper direction, which has benefited from important practical lessons and advances in economic research. [ABSTRACT FROM AUTHOR]

This paper describes the dynamics of the monetary policy decisions enacted by the Central Bank of Colombia and the transmission to other interest rates, in order to identify the effectiveness and backwardness of such monetary policy measures. Based on a theoretical model, a VECX-MGARCH model is used to analyze the interactions among different interest rates and model the relationship between the volatilities of the endogenous variables of the model. Impulse-response functions suggest that the effect of a monetary shock on interest rates closely follow the objectives set by the Central Bank, both in sign and magnitude. [ABSTRACT FROM AUTHOR]

The paper tests whether ex ante deviations from Uncovered Interest Rate Parity correspond to default risk premium. Using an automated model selection criteria and data for Brazil (from november 2001 until december 2007), we found that deviations are correlated with a measure of risk (the EMBI+ ). There is also evidence that these deviations can be explained and predicted by a set of fundamentals (such as the current account deficit as a percentage of the GDP and domestic inflation for example). Insofar as some of these variables can be controlled by the government, the results suggest that economic policy is able to decrease risk. [ABSTRACT FROM AUTHOR]

This paper estimates transition matrices for the ratings on financial institutions, using an unusually, informative data set. We show that the process of rating migration exhibits significant non-Markovian behavior; in the sense that the transition intensities are affected by macroeconomic and bank-specific variables. We illustrate how the use of a continuous time framework may improve the estimation of the transition probabilities. However, the time homogeneity assumption, frequently done in economic applications, does not hold, even for short time intervals. Thus, the information provided by migrations alone is not enough to forecast the future behavior of ratings. The stage of the business cycle should be taken into account, and individual characteristics of banks must be considered as well. [ABSTRACT FROM AUTHOR]

Krishna (1998) shows that a bilateral agreement between two countries render a multilateral agreement less attractive if the bilateral agreement is trade diverting. This paper combines Krishna's model with the empirical approach of Anderson and van Wincoop (2003) to show that the estimated effect of tariffs in a multiple country (n>3) context over time measures trade diversion. We apply this measure to new asymmetric, time-yawing Latin American trade and tariff data using Anderson and van Wincoop's (2003) nonlinear estimation approach and OLS. The results show an increase in trade diversion as sub-regional trade agreements proliferated and enthusiasm for the Free Trade Agreement of the Americas declined. [ABSTRACT FROM AUTHOR]

This paper reviews the traditional ways to measure volatility which are based only on closing prices, and introduces alternative measurements that use additional information of prices during the day: opening, minimum, maximum, and closing prices. Using the binomial model, we prove that alternative measurements are more efficient than the traditional ones. An empirical application is performed using daily data of the chilean stock market index IPSA. From the theoretical and empirical results we propose an unbiased and efficient measure of daily volatility for this financial market. [ABSTRACT FROM AUTHOR]

This paper analyzes the effects of changes of Banco de la República' s policy interest rate in the term structure. The evidence suggests that, in daily frequency, these reactions are not significant. However, with weekly data we found an anticipated reaction (one and three weeks before the movement) in the term structure in response to a change in the policy interest rate. Unfortunately the reaction has a "steepness effect" on the term structure, which may not support the expectations hypothesis of interest rates or may suggest a weak credibility and transparency of Banco de la República or both. [ABSTRACT FROM AUTHOR]

This paper investigates the nature of volatility spillovers between stock returns and a number of exchange rates in six Latin American countries and one European economy in the 1998-2006 period. We divide our sample into sub periods, prior to and after the introduction of the Euro and we apply the EGARCH methodology to model volatility. Our results show that the volatility of stock returns affects the volatility of exchange rates; however, we do not find evidence of volatility transmission in the opposite direction. [ABSTRACT FROM AUTHOR]

This paper asks whether the 'leverage effect' -as defined by Black (1976) for stock markets- is also a characteristic of foreign exchange markets. The study focuses on five Latin American emerging markets which have adopted a floating exchange regime, It finds that the response of exchange rates to volatility shocks is characterized by long memory and symmetry in most countries. The response is asymmetric only in Brazil and Peru. A possible explanation for this asymmetry is the 'fear of floating' that induces side-effects on interest rates and inflation, which the market considers 'bad news'. The opposite direction of the asymmetry may be explained by the particular characteristics of each economy. [ABSTRACT FROM AUTHOR]

This paper analyses the relative price variability (here after, RPVI) for Argentina from 1960 to 1993. We have distinguished a first period (1960-1975) with a moderate and stable inflation and a second one (1975-1993) with four inflation regimes: moderate, high, very high and hyperinflation. Results show that for the high, very high, and hyperinflation regimes, volatility and all components of inflation are relevant in explaining RPVI; but for the moderate regime, volatility and uncertainty are insignificant, and the impact of expected and unexpected inflation shocks depends on whether inflation is stable or not. [ABSTRACT FROM AUTHOR]

The aim of this article is to develop a methodology for a spatial or regional cost index of housing that considers spatial differentials across regions. Using microdata from the Chilean survey CASEN 2003, it is showed that a spatial or regional housing price index based on the weighted mean or the estimators of hedonic price equations might lead to biased results due to spatial heterogeneity. The potential bias is reduced by matching the houses in a region with a clone in the Metropolitan Region, according to own and neighbors' characteristics using propensity scores. As a result a very different pattern of spatial cost of housing arises. Finally, using a Fisher ideal price index, the paper proposes a spatial or regional cost index of housing that shows price differences for homogeneous houses across regions. [ABSTRACT FROM AUTHOR]

Despite reform efforts, the economic performance of Latin American countries during the 1990's was disappointing with the exception of Chile, which grew at almost 7% per year. This paper tries to explain this difference. Following recent literature that highlights the role played by institutions and policies on economic growth, we estimate a cross-section econometric model over the 1960-2005 period and find that Chile's better performance can largely be explained by a combination of better institutions and reforms that have been deeper and broader in scope than those in the rest of Latin America. In addition, we estimate that improving institutions in other Latin American countries to the Chilean standard would have increased per-capita GDP growth rates by about one and a half percentage points. [ABSTRACT FROM AUTHOR]

Banks and other credit institutions are key players in the transmission of monetary policy, especially when the responses of deposit and loan interest rates to shifts in policy rates are among the most important channels. This pass-through depends on the conditions prevailing in the loan and deposit markets, which are, in turn, affected by macroeconomic factors. Hence, when setting their policy, monetary authorities must take into account those conditions and the behavior of banks. This paper shows this point using a micro-banking model and presents supporting empirical evidence based on monthly data for Colombia between 1999 and 2006. [ABSTRACT FROM AUTHOR]

This paper evaluates the extent to which the establishment of the different governance forms linking hospitals to insurance companies in Bogotá is carried out taking into account transaction costs reduction criteria. An empirical test is applied, using the transaction dimensions proposed by Williamson (1985). Hypotheses are tested by a combination of the acceptability analysis stochastic method and multiple discriminant analysis. We conclude that both hospitals and insurance companies seek to reduce production costs, while transaction costs are not relevant to the decision. [ABSTRACT FROM AUTHOR]

This paper analyzes the determinants of the unemployment spells for the beneficiaries of "Chile Solidario", a conditional cash-transfer program. The evidence on unemployment spells for Chile is scarce. Employing the Kaplan-Mehier's non-parametric estimator, I found that at the beginning of the unemployment spell there exists a high probability of leaving unemployment. This probability reaches its peak on the seventh month, after which, it declines. Moreover, parametric estimations show that factors such as belonging to the indigenous population, being between 45 and 54 years old, being woman and having low education, increase the spell of unemployment. [ABSTRACT FROM AUTHOR]

Efficient regulation of the commons requires information about the regulated firms that is rarely available to regulators (e.g., cost of pollution abatement). Montero (2008) proposes a simple mechanism for inducing firms to truthfully reveal their private information: a uniform price sealed-bid auction of an endogenous number of(transferable) licenses with a fraction of the auction revenues given back to firms. This paper discusses further properties of the mechanism including its extension to the possibility of private externalities and non-transferability of licences. [ABSTRACT FROM AUTHOR]

This paper aims to identify the macroeconomic determinants of sovereign bond spreads in Argentina, Brazil and Mexico and discusses the economic policies underlying the divergent fortunes experienced by these countries over 1993-2001. Those determinants, namely real GDP growth, gross capital inflows and debt service burden (as a percentage of GDP), are derived from a consistent theoretical framework and empirically tested. The econometric analysis suggests that a permanent change in these determinants has a more significant and robust impact on spreads than transitory shocks. It also points out that financial contagion or risk-aversion variables have a meaningful role in explaining sovereign spreads across Latin American countries. [ABSTRACT FROM AUTHOR]

In this paper we find empirical evidence of bank lending channel for Colombia and Argentina. For Argentina, we do not find evidence that changes in the interbank interest rate affect the growth rate of total loans directly. However, the interbank interest rate affects the loan supply through its interactions with capitalization and liquidity. For Colombia, there is direct bank lending channel, which is reinforced through interactions with capitalization and liquidity. Also, using a panel data of more than 3,300 firms, we provide additional support to the existence of a bank lending channel for Colombia. [ABSTRACT FROM AUTHOR]

In this paper we applied the dynamic system theory to the measurement of the stability of the European process of convergence. In particular, Lyapunov's exponents are used to verify the influence of political and economic decisions made during the creation of the European Union on the stability (or instability) of exchange rate fluctuation in different European countries. We find evidence of such relationship. [ABSTRACT FROM AUTHOR]

This paper studies the non-cooperative equilibrium of an electricity auction in which bidding firms are risk averse and have complete information. It assumes a centralized dispatch and stochastic hydraulic generation. We find that the auction allocates the energy contract to the generating firm that sets the spot market price: the thermal firm under moderate hydrological conditions and the hydraulic firm under a severe drought (rationing). In both cases the equilibrium price is greater than the regulated nodal price. Results are robust to introducing compensations for supply shortages. Finally, we find that if firms were risk-neutral they would bid the same prices and equal to the regulated nodal price, regardless of supply-shortage risk. [ABSTRACT FROM AUTHOR]

Tournament design variables --such as the number of teams and matches-- affect attendance. This paper provides evidence of how design variables have affected attendance in the Chilean football league. We estimate the annual demand for stadium tickets with tournament design variables among the regressors. The results suggest that moving towards the optimal tournament structure implies fewer teams and more matches. For example, a tournament with 14 teams and 3 rounds of matches (totaling 273 games) --as opposed to the current 16-team, 2-round league structure (240 games)-- would increase attendance by 28%. [ABSTRACT FROM AUTHOR]

We present in this paper an estimation of the distributive effects of the reform of the Uruguayan pensions system initiated in 1995. The estimation is based on simulations done with an overlapping generations model adapted and calibrated to the Uruguayan reality. We compute the expected changes in the generational accounts of several groups of workers, considering different generations, gender and income level. The simulations are done in the framework of a small open economy macroeconomic model, and hence we can simultaneous and consistently assess the micro and macro impact of the reform. [ABSTRACT FROM AUTHOR]

An important limitation in order to specify and estimate a macroeconomic model that describes the Chilean economy resides in using variables with sufficient number of observations that allow for a reliable econometric estimation. Among these variables, the GDP constitutes a fundamental magnitude. Nevertheless, for this variable there is not quarterly information before 1980. This paper computes quarterly GDP series for the period 1965-1980 using the approach by Casals et al. (2000). As result, the new series incorporates the cyclical dynamic in the quarterly series later to 1979 respecting, in addition, all the annual existing information before the above mentioned period. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to estimate total factor productivity growth by sector of activity for the Chilean economy in 1986-2001. The main problem that we face is the lack of data on the stock of capital by sector for the whole period. We design a methodology to generate capital stock series by sector. After adjusting the generated series on the stock of capital by an utilization factor and the employment series by their relative quality, we estimate TFP by sector. Our results indicate that the sector with the largest productivity increase in this period has been commerce. Our results match evidence from other countries where it has been found that the sectors with the largest increase in productivity are those sectors that use intensively information technology. [ABSTRACT FROM AUTHOR]

The main goal of the paper is to evaluate the sources of growth in Chile and the world in the last three decades, but stressing the role of complementarities in economic policies. Therefore, we evaluate the growth determinants for a sample of seventy-eight countries with information over the 1970-2000 period. In contrast to Gallego and Loayza (2002), we test directly the existence of complementarities between trade and financial liberalization policies with: a) the initial conditions of the economy, b) human capital policies, and c) the quality of institutions. [ABSTRACT FROM AUTHOR]

Road crashes are a major source of transport externalities. Based on Jansson's road crashes model, this paper analyzes ways to internalize those externalities. Jansson's model is extended to analyze the effect of congestion and safety variables related to vehicle and infrastructure design on crash rates and severity. The model is then used to compute the cost of road crashes externalities in Chile. [ABSTRACT FROM AUTHOR]

During the last couple of decades, migratory movements in Chile have been minimal. Regions are far from achieving equality in per capita income, and migration has not been an equalizing force. Hence, there is marked persistence in regional inequity. This paper attempts to explain this lack of convergence. The main hypothesis is that there are some public policies that have an inhibiting effect over migration. In particular, the educational subsidies would act as an anchoring element. Using an enlarged version of the Harris and Todaro Model (1970) we conclude that in effect the "in school" food subsidy given by the Ministry of Education (for over 40 years) a powerful deterrent of migration between regions in Chile. [ABSTRACT FROM AUTHOR]

This paper incorporates demand and supply fundamentals in the determination of the Real Exchange Rate (RER). We are able to confirm the negative influence of the ratio expenditure-PIB and the terms of trade on RER, but in addition we find robust evidence of the presence of the effect Balassa-Samuelson. We do not find, however, the existence of a negative impact of the public expenditure on the RER, in addition to the gathered one in the Salter-Swan effect. Finally, we also provide evidence indicating that the effect of this last variable defers according to the composition of production and levels of unemployment. [ABSTRACT FROM AUTHOR]