Short-Run Flexibility in a Developing Economy.

In analysis of and policy recommendations for developing economies, frequently the assumptions are made that the degree of capacity utilization is not an important consideration and that short-run flexibility is extremely limited. These assumptions are examined in the case of the postwar experience of nine sectors of the Chilean economy. The basic conclusion of this examination is that considerable short-run flexibility does exist in the Chilean economy; therefore, the frequently assumed rigidities lead to a too narrow set of policy alternatives. Not insignificant benefits may be gained from anticyclical policies, and there may be a high payoff to policies which improve the functioning of markets. [ABSTRACT FROM AUTHOR]