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The paper concludes that world copper prices play an important role in short-term fluctuations and probably influence long-term growth of the Chilean economy. While many mechanisms may be at work, investment seems to play a major role. In a copper price boom, the higher copper price and associated capital inflows create upward pressure on the real exchange rate. The appreciation of the Chilean peso during the first part of the copper cycle contributes to lower inflation, which could partly explain why real wages grow more rapidly in this part of the cycle.
This paper estimates potential output and the sources of growth in Chile during 1970-96. Actual output is cointegrated with the quality-adjusted measures of capital and labor, and constant returns to scale cannot be rejected. The estimates of potential output show a positive output gap in the years when the Chilean economy was deemed to be overheated. In 1986-90, the quality-adjusted labor variable explains close to 60 percent of the growth rate of GDP, while during 1991-95 capital formation plays a dominant role. The contribution of TFP growth in Chile is relatively small, but, based on a comparison with European and East Asian experiences, it is expected to increase in the medium term.

Chile

International Monetary Fund. Western Hemisphere Dept.

Published: 2015-08-06

Total Pages: 33


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This Selected Issues paper examines the effect of lower copper prices on Chile’s growth at various time horizons. This paper discusses the copper outlook and suggests that the fall in copper prices is likely to have a persistent (although not permanent) effect on GDP growth. It argues that copper prices are unlikely to return to historical highs in the near future. The paper also provides theoretical and empirical evidence supporting the view that long-term GDP growth will not be affected, but the transition toward a lower GDP level can take up to a decade.
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
This paper presents a comprehensive database of country-specific commodity price indices for 182 economies covering the period 1962-2018. For each country, the change in the international price of up to 45 individual commodities is weighted using commodity-level trade data. The database includes a commodity terms-of-trade index—which proxies the windfall gains and losses of income associated with changes in world prices—as well as additional country-specific series, including commodity export and import price indices. We provide indices that are constructed using, alternatively, fixed weights (based on average trade flows over several decades) and time-varying weights (which can account for time variation in the mix of commodities traded and the overall importance of commodities in economic activity). The paper also discusses the dynamics of commodity terms of trade across country groups and their influence on key macroeconomic aggregates.
This paper estimates the effect of copper prices on Chile’s growth at various time horizons. We find that a price decline is likely to have a durable (although not permanent) effect on GDP growth: while the impact is the strongest in the first 3 years after the shock, the transition towards the new lower steady-state GDP level generally takes 5–10 years. From a production function perspective, the GDP growth slowdown is mainly driven by lower capital accumulation.
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