In economics, probably the most important concept is opportunity cost. In my first undergraduate classes, I must admit that it was not easy for me to assimilate it completely, no matter how much effort my introductory course professor, Hernán Burdiles, put into the subject. It was hard for me to understand that everything had an alternative cost, that for everything there was a "price". Perhaps the humanists will be frightened, but don't worry, this is not what they are thinking. The "price" of a thing is not always, in fact, most of the time, it is monetary. In a simple example, the price of reading these lines is the second most important thing you gave up to take a look at my column: reading another one, checking your mails, sleeping, eating, running, etc. In fact, most of the alternative costs have to do with time, given its linearity (as far as we know it), which is very easy to understand by reading Borges and his "Library of Babel".

This, so micro, reaches as many levels of complexity as you want. From deciding what to have for lunch to privileging one public policy over another (yes, believe it or not, public resources are scarce). For better or for worse, my professional (de)formation makes me evaluate, in all areas of things, my rational decisions in this way, thinking about what I am giving up to do what I am (or want to) do.

This week, the Central Bank published the Financial Stability Report for the second quarter of 2021, in which emphasis is placed, among other things, on analyzing the causes behind the abrupt movements of financial assets during the last few months. In this opportunity, for the sake of length, I will refer to only two of them, although they are not the only ones and others could be as or more important. In the first place, local interest rates have risen significantly, especially in their longest tranches, which has not brought good news to those who are thinking of buying a property or who have invested their savings (voluntary or mandatory) in more conservative funds. From February to date, the 10-year peso sovereign bond rate has risen by just under 400 basis points, which is at the high end of a sample of not only OECD countries, but also emerging and Latin American countries. When we try to decompose this rise, using statistical tools, we find that about 100 bps have been caused by increases in the risk-free rate, and all the rest by term premia. In other words, uncertainty. Unfortunately, this is not all, since in addition to the increases in level there has also been a significant increase in their volatility (in absolute and relative terms), making them riskier elements. Why have rates risen and mortgage credit conditions worsened? Here is a very relevant reason.

Secondly, the peso has been one of the most punished currencies in recent times, even considering the very high levels of copper prices, the liquidation of dollars by the Treasury and the PFAs in the local market and the increases in the TPM. Using fundamental explanatory models, we arrive at the conclusion that, from February to date, of the almost 10% exchange rate depreciation of the period, 4% has been explained by changes in unfavorable macro conditions, which almost completely offset the favorable macro conditions (higher copper price and interest rate differential). In other words, without idiosyncratic uncertainty, our exchange rate would be almost 10% below current levels.

Therefore, when people talk to you about the "costs to the country" of one policy or another, think about measuring it in units such as those I have mentioned, thanks to the work of the Central Bank, in these lines. Or perhaps the impossibility for someone to have access to an apartment, or the additional costs incurred by an importer, or something that may be touching you directly.

Nathan Pincheira

Chief Economist of Fynsa