mexico-chile

mexico-chile - A Decade Lost and Found: Mexico and Chile in...

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A Decade Lost and Found: Mexico and Chile in the 1980s* Raphael Bergoeing Centro de Economía Aplicada, Universidad de Chile, Santiago, Chile raphaelb@dii.uchile.cl Patrick J. Kehoe Research Department, Federal Reserve Bank of Minneapolis, Minneapolis, Minnesota 55480, Department of Economics, University of Minnesota, Minneapolis, Minnesota 55455, and National Bureau of Economic Research, Cambridge, Massachusetts 02138 pkehoe@res.mpls.frb.fed.us Timothy J. Kehoe Department of Economics, University of Minnesota, Minneapolis, Minnesota 55455, Research Department, Federal Reserve Bank of Minneapolis, Minneapolis, Minnesota 55480, and National Bureau of Economic Research, Cambridge, Massachusetts 02138 tkehoe@umn.edu and Raimundo Soto Instituto de Economía, Pontificia Universidad Católica de Chile, Santiago, Chile and Gerencia de Investigación Económica, Banco Central de Chile, Santiago, Chile rsoto@faceapuc.cl September 2001 Revised March 2007 *We would like to thank the participants at the Minneapolis Fed’s “Great Depressions of the Twentieth Century” conference—especially Pete Klenow—and participants at seminars at the Centre de Recerca de Economia de Benestar and the East-West Center for helpful comments. We are also grateful to Edgardo Barandiarán, V. V. Chari, Bob Lucas, Rolf Luders, Art Rolnick, Jaime Serra-Puche, and especially Ed Prescott, for useful discussions. Jim MacGee, Kim Ruhl, Mark Gibson, and Ananth Ramanarayanan provided invaluable research assistance. Bergoeing thanks the Hewlett Foundation, Kehoe and Kehoe thank the National Science Foundation, and Soto thanks the Banco Central de Chile for research support. The data used in this paper are available at http://www.econ.umn.edu/~tkehoe/ and www.greatdepressionsbook.com. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.
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Abstract Chile and Mexico experienced severe economic crises in the early 1980s. This paper analyzes four possible explanations for why Chile recovered much faster than did Mexico. Comparing data from the two countries allows us to rule out a monetarist explanation, an explanation based on falls in real wages and real exchange rates, and a debt overhang explanation. Using growth accounting and a calibrated growth model, we find that the difference in the performance of Chile and Mexico was driven not by differences in inputs of capital and labor stressed by traditional theories of depressions, but rather by differences with which these inputs were used, measured as total factor productivity (TFP). Using economic theory to interpret historical evi- dence, we conclude that the crucial difference between the two countries was earlier reforms in government policy in Chile. The most crucial of these reforms were in banking and bankruptcy procedures.
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mexico-chile - A Decade Lost and Found: Mexico and Chile in...

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