Asset Prices in Chile: Arbitrage and Bubbles
Abstract
This article presents evidence on the main empirical regularities exhibited by the prices of real asset prices in Chile during the last twenty years. By using a dynamic error-correction model, tests are performed on long-run arbitrage conditions between the prices of different assets (land, real estate, and stocks) and short-run relationships between asset prices and exogenous policy and idiosyncratic variables. The presence of "bubbles" that is, the phenomenon in which asset prices depart from what is explained by their fundamentals - is also tested for the last decade. Finally, by running some countetfactual exercises, the impact of different macro policies on asset price trajectories is simulated. However one should be cautious in interpreting the simulation results, as the main objectives of macro policies may have not been to influence asset prices in any direction but rather to achieve more global aims.
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