Efficient Arbitrage Under Financial Indexation The Case of Chile

Legal restrictions governing financial transactions in Chile have produced a system in which most financial assets are either 30-day non-indexed assets or 90-day indexed assets. This paper analyzes data on the rates of return of these assets to determine the extent to which efficient arbitrage takes...

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Bibliographic Details
Main Author: Mendoza, Enrique
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1991
Series:IMF Working Papers
Subjects:
Wp
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:Legal restrictions governing financial transactions in Chile have produced a system in which most financial assets are either 30-day non-indexed assets or 90-day indexed assets. This paper analyzes data on the rates of return of these assets to determine the extent to which efficient arbitrage takes place under conditions of partial financial indexation. The data cannot reject the joint hypothesis that participants in financial markets formulate their expectations rationally and that these markets operate efficiently. The data also shows that the indexed/non-indexed interest spread is an accurate predictor of future changes in inflation. The significant implications of these findings for the conduct of monetary policy are also discussed in some detail
Physical Description:36 pages
ISBN:9781451971668