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Monetarism and Liberalization

The Chilean Experiment

The successes and failures of free market policy in Chile, implemented in 1973 under the guidance of economists trained at the University of Chicago, are clearly explained in this well-written study. The authors argue that it was a combination of misjudgments, including important policy errors, that led to the collapse of the Chilean economy.

"The Edwards’s book is an indispensable guide to the policy reforms and mistakes that have taken the [Chilean] economy to its present state."—Philip L. Brock, Money, Credit, and Banking

"This book is a ’must’ for anybody interested in development economies and the problems of liberalization."—Hansjorg Blochliger, Journal of International Economics

Table of Contents

List of Figures
List of Tables
Preface to the Paperback Edition
1. The Chilean Experiment: An Overview
The Chilean Economy before 1973
The Military Experiment
2. The Stabilization Program: From Monetarist Orthodoxy to Exchange Rate Management
The Closed Economy Approach to Stabilization: 1975-77
Open Economy Monetarism: 1978-92
The Costs of Disinflation
3. Financial Liberalization, Interest Rates, and the Real Exchange Rate
The Reform of the Financial Market
Financial Intermediation
Interest Rates, The "Boom," and Expected Devaluation
The Liberalization of the Capital Account, Foreign Indebtedness, and the Real Exchange Rate
The Miracle Turns Sour: The Financial Crisis of 1981-82
Appendix 3A: A Model for Analyzing Real Interest Rate Behavior in a Semi-Open Economy
4. Privatization and Deregulation
The Privatization Process
Privatization, Concentration, and the Grupos
The Deregulation Process and the "Seven Modernizations"
5. The Liberalization of International Trade
The Reform
Tariffs, the Real Exchange Rate, and Nominal Exchange Rate Policy, 1974-79
Adjustment and Productivity
Response of Exports and Imports
Overvaluation and the External Sector
6. Unemployment and Income Distribution
Government Intervention and Labor Market Structure
Population and Labor Force Participation
The Behavior of Employment
Wages and Indexation
The Unemployment "Puzzle": A Suggested Interpretation
Income Distribution
7. The Sequencing of the Liberalization Reforms
The Sequencing of Liberalization in Chile
The Appropriate Sequencing of Liberalization of the External Sector: Analytical Aspects
The Sequencing of Liberalization: Lessons from Chile
8. From Miracle to Crisis: Lessons from the Chilean Experiment
External Shocks and the Magnitude of the 1982 Crisis
The Conduct of Economic Policy and the Collapse of the Chilean Economy
Afterword: The Chilean Economy after 1983: Recovery and Consolidation of Reforms
About the Authors

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