2002a); “General Equilibrium Dynamics of Foreign Shocks and Policy Changes in Chile”, paper presented at the Central

This paper develops a macroeconomic general-equilibrium model fully parameterized for the Chilean economy. The model’s basic relations are derived from intertemporal optimization by a fraction of rational forward-looking agents. However, it also introduces critical real-world features – such as short-run wage rigidities and a fraction of myopic agents – that generate deviations from the frictionless full-employment equilibrium of the unconstrained neoclassical paradigm. The model is numerically simulated to account for the dynamics of Chile’s economy in response to the foreign shocks and policy shifts that led to the 1998-99 recession