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Figure 4.6. Chile
Since the late 1990s, Chile has followed a policy mix of inflation targeting, a floating
exchange rate, and free capital flows. It has also improved its general institutional quality and
implemented more countercyclical fiscal policy. The net effect has been that fluctuations in
gross capital inflows are buffered by gross capital outflows, and the country has been much
less affected by fluctuations in gross inflows than in the past.
1. GDP and Unemployment
(percent)
30
25
20
15
10
5
0
–5
Real GDP growth (year over year)
Unemployment
Unemployment (Santiago)
1981
86
91
96
2001
06
–10
–15
–20
12:Q4
2. Government Spending and Institutional Quality
1.2
1.4
0.8
1.2
0.4
1.0
0.0
–0.4
0.8
Correlation of government spending and GDP
Institutional quality (right scale)
–0.8
–1.2
1981
86
91
96
2001
0.6
11
06
3. Gross Capital Flows
(percent of GDP)
20
15
10
5
0
Gross inflows
1980
85
90
95
2000
Gross outflows
05
–5
10
–10
12
Sources: Haver Analytics; IMF, Balance of Payments Statistics; IMF, International Financial
Statistics; PRS Group, Inc., International Country Risk Guide; and IMF staff calculations.
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