Eric Parrado

• PhD
• Chief Economist at Inter-American Development Bank

Over the past quarter-century, Chile has proven that the unthinkable is possible: A middle-income, natural resource-producing nation can have a fiscal policy that is both stable and sustainable. The core of this policy has been very simple: Act responsibly, design policy for the long run, and accumulate enough fiscal space so that fiscal policy can...

The paper proposes a New Keynesian monetary model where firms' pricing policies feature a forward-looking optimal choice of the rate of price growth. The model can be thought of as a reduced form model of rational inattention that has only one additional state variable relative to the Calvo model [Journal of Monetary Economics 12 (1983), 383–398]....

The Chilean system of housing finance is a mixture of public and private elements that has arguably been very successful. This paper provides an up- to-date review of the main instruments, actors, and government policies of the Chilean system of housing finance. It concludes that, while the system is indeed functioning well, the increasingly import...

This article discusses first, in some detail, Chile's fiscal policies and how they were applied. Much thinking and design went into this approach-some of it local, some of it adapted from successful experiences such as that of Norway. It also examines the economic results of the shift in fiscal policy. The effects on fiscal variables were large: a...

Sovereign Wealth Funds (SWFs) are state-owned investment funds with combined asset holdings that are fast approaching four trillion dollars. Recently emerging as a major force in global financial markets, SWFs have other distinctive features besides their state-owned status: they are mainly located in developing countries and are intimately tied to...

The availability of real estate data is clearly limited in Chile, which makes more complex the discussion of the possible vulnerabilities of households and the financial sector to risks arising from real estate markets. This paper proposes a set of housing price indicators for measuring the potential pressures that could be developing in the credit...

Using the Panel Study of Income Dynamics, and using both the original and the new series of occupation and industry codes, we investigate occupational and industrial mobility of individuals over the 1969–1980 and 1981–1993 periods in the U.S. We find that workers changed both occupations and industries more frequently in the later period. We also f...

El trabajo revisa el modelo de overshooting de Dornbusch; primero, para discutir las condiciones de sobrerreacción (overshooting) y subreacción (undershooting) del tipo de cambio, extendiendo el modelo para considerar reglas de política monetaria y movilidad imperfecta de capitales. En segundo lugar, para realizar una representación del modelo de D...

In sum, monetary policy in Central America has received an injection of institutional strength as a result of the reform of central bank legislation, though important flaws still remain. Progress is noticeable in focusing the mandate of central banks on combating inflation and preserving price stability and in granting banks operational autonomy. H...

This paper summarizes the main results from the latest household panel survey (Social Protection Survey 2004/05 about the distribution of assets, debt and income across Chilean households. Several appealing conclusions can be drawn. First of all, it is worth stressing that a relatively small proportion of households hold a large share of debts, ass...

Why hasn’t inflation converged to price stability in Central America and the Dominican Republic? Why is it currently still high by Latin American standards? This paper addresses these questions, and finds that despite the institutional strengthening of monetary policy, important flaws remain in most central banks, in particular the lack of a clear...

This paper explores the interaction of real dollarization (dollar indexing of wages), financial dollarization (dollar denomination of financial contracts) and monetary policy in a general equilibrium model with real shocks. Real dollarization is avoided as long as the home monetary authorities perform optimally (i.e., they maximize local welfare)....

The shift to inflation targeting has contributed to the relatively low inflation observed in some emerging market economies although, as noted by many economists, the preconditions required for a successful implementation were not in place. The existence of managed exchange rate regimes, a narrow base of domestic nominal financial assets, the lack...

How should a central bank organize itself to produce the best possible inflation forecast? This paper discusses elements for building a comprehensive platform for an inflation forecasting framework. It describes the exercise of forecasting inflation as a production process, which induces a strict discipline concerning data management, information g...

An increasing number of emerging market economies have been adopting IT as their monetary policy regime. There is reason to believe that this shift has contributed to the relatively low inflation observed in these economies.2 This outcome has surprised those who maintained that these economies are far away from the preconditions required for implem...

Using the Panel Study of Income Dynamics, we investigate occupational and industrial mobility of individuals over the 1969-80 and 1981-93 periods in the United States. We find that workers changed both occupations and industries more frequently in the later period. For example, occupational mobility for men ranged from 15 to 20 percent per year dur...

2. El sector inmobiliario chileno En Chile, como en muchos otros países del mundo, las viviendas son el principal componente de la riqueza de los hogares y constituyen la principal garantía de los créditos otorgados por el sistema financiero a los hogares. Consecuentemente, fluctuaciones en los precios de las viviendas influyen en las decisiones de...

We present a data oriented analysis of the effect of different kind of economic shocks on Chilean output growth and inflation over the last 40 years. Two important results are: (1) foreign shocks only explain 17% of the variability of the output growth in the period 1984-2006 whereas it used to account for the 47,2% of output variability in 1966-19...

In this paper we use a VAR model to analyze the response of the Chilean business cycle to shocks and the capacity of the Chilean economy to withstand them (resilience). Novel features in the analysis include the introduction of an expanded set of variables to capture the impact of external shocks and domestic shocks —including policy variables; the...

This paper provides a simple dynamic neo-Keynesian model that can be used to analyze the impact of monetary policy that considers inflation targeting in a small open economy. This economy is characterized by imperfect competition and short-run price rigidity. The main findings of the paper are that, depending on what shocks affect the economy, the...

The Monetary Authority of Singapore, instead of relying on short-term interest rates or monetary aggregates as its monetary policy instrument, conducts policy by managing the trade-weighted exchange rate index (TWI). This paper investigates how this operating procedure actually works. For empirical purposes, it assumes the authorities follow a reac...

This paper provides a monetary model with nominal rigidities that differs from the conventional New Keynesian model with firms setting pricing policies instead of price levels. In response to permanent or highly persistent monetary policy shocks this model generates the empirically observed slow (inertial) and prolonged (persistent) reaction of the...

This paper explores how real dollarization (dollar indexing of wages), financial dollarization (dollar denomination of financial contracts), and monetary policy interact in a general equilibrium, new open-economy macroeconomics model with real shocks. Real dollarization is avoided as long as the home monetary authorities conduct monetary policy opt...

Using an optimizing model we derive the optimal monetary and exchange rate policy for a small stochastic open economy with imperfect competition and short run price rigidity. The optimal monetary policy has an exact closed-form solution and is obtained using the utility function of the representative home agent as welfare criterion. The optimal pol...

Using an optimizing model we compare alternative monetary policy rules and exchange rate regimes for a small stochastic open economy with imperfect competition and short run price rigidity. The criteria to choose among rules and regimes are obtained using a welfare criterion derived from the utility function of the representative agent. The main fi...

This paper considers empirical evidence for a small open economy, characterizing and identifying the dynamic effects of both foreign and monetary policy shocks on Chilean macroeconomic variables. A structural VAR approach is used with non-recursive contemporaneous restrictions. Several interesting results appear in the analysis. First, consistent w...

This paper considers empirical evidence for a small open economy, characterizing and identifying the dynamic effects of foreign and monetary policy shocks on Chilean macroeconomic variables. A structural VAR approach is used with non-recursive contemporaneous restrictions. The analysis provides several interesting results. First, consistent with th...

Using the Panel Study of Income Dynamics, we investigate occupational and industrial mobility of individuals over the 1969-1980 and 1981-1992 periods in the U.S. We find that workers changed both occupation and industry more frequently in the later period. Workers, on average, shifted occupation 1.8 times in the earlier period and 2.1 times in the...

After marked fluctuations in the business cycle over the last fifty years, the Chilean economy now appears to be less volatile and more resilient to external shocks. Because Chile is a small and increasingly open economy, analysts have long suspected that the amplitude of the cyclical fluctuations in the business cycle is closely related to changes...

La importancia de las compañías de seguros de vida (CSV) dentro del sistema financiero chileno se ha incrementado significativamente en la última década. Desde 1996, el sector ha doblado el volumen de activos administrados como porcentaje del producto interno bruto (PIB), llegando a 20% en el primer trimestre del 2005. Este documento presenta los...

Abstract The paper proposes a monetary model with nominal rigidities that differs from the con- ventional New Keynesian model in that firms set pricing policies instead of price levels. In response to monetary policy shocks this model generates the empirically observed slow (iner- tial) and prolonged (persistent) reaction of the inflation rate, and...

Este documento presenta un modelo monetario con rigideces nominales en el cual las firmas, a diferencia del nuevo modelo Keynesiano, establecen políticas de fijación de precios en vez de fijar el nivel de precios. En respuesta a shocks monetarios persistentes, el modelo es capaz de generar la lenta (inercial) y prolongada (persistente) reacción de...

Este trabajo considera evidencia empírica para una economía pequeña y abierta, caracterizando e identificando los efectos dinámicos de shocks externos y de política monetaria sobre la economía chilena. Se utiliza la metodología de VAR estructurales con restricciones contemporáneas no recursivas. De este análisis surgen varios resultados interesante...

La disponibilidad de información relacionada con precios de vivienda está claramente limitada en Chile, lo que hace más compleja la discusión de la posible vulnerabilidad de los hogares y el sector financiero a los riesgos derivados de los mercados inmobiliarios. Este trabajo propone un conjunto de indicadores de precios de vivienda para medir las...