Capital flows: Lessons from the Chilean experience

This article examines the capital regulation system used in the Chilean economy in recent years. It begins by describing the factors determining international capital movements in recent times and the role of the financial system in the intermediation of such flows. It then considers the Chilean policy on the regulation of capital flows, which seeks to solve the problem of how to reconcile the reduction of inflation with the maintenance of a real exchange rate compatible with export competitiveness. The policy instruments used include intervention by the Central Bank, which is reflected in a strong increase in the international reserves, together with open-market money sterilization operations.