Efectos macroeconómicos de las entradas de capitales en la economia costarricense

Abstract

During the period of 1999-2011 the Costa Rican economy has experienced the incoming of capital inflows in sizeable amounts. Such flows have had, and continue to have, important implications for the effectiveness of the monetary policy conducted by the Central Bank of Costa Rica. The objective of this paper is to measure the quantitative impact of capital inflows on various macroeconomic variables. Special attention will be given to the effects that these flows have on the price of financial and real assets. Credit growth and the appreciation of asset prices that usually follow large capital inflows may have important implications for the stability of financial systems. For this reason, it is of interest for economic policy to determine how large capital inflows may lead to potential financial crisis. In this sense, an additional objective of this paper is to provide a general view of the state of macro-prudential regulation in Costa Rica in terms of the management of capital inflows. The empirical evidence suggests that surges in capital inflows would be associated with an easing of financial conditions in the economy, an expansion of credit, increased aggregate expenditure and higher inflation. Additionally, capital inflows appear to have a mild effect on the price of financial assets and the price of land. However, the price of land in the pacific coastal provinces displays a very strong response to a capital inflows shock. The response of the real state sector and the lending to real estate assets do not suggest that this sector experiences a boom fueled by higher capital inflows. Also, it seems that periods of capital inflows bonanza do not tend to feed a consumption boom. Finally, the steep increase in exports after a shock seems to require higher imports of capital goods and raw materials.