Abstract:
Fanning the Flames describes a period of unrest in Chile spanning from 2019 to 2022. During this time, a mass protest movement, the COVID-19 pandemic, skyrocketing inflation, and political upheaval presented deep challenges to President Sebastián Piñera and his successor, President Gabriel Boric. As Chile tried to recover from the COVID-19 pandemic, inflation skyrocketed to alarming rates that far exceeded most of its Latin American neighbors. The case asks students to diagnose the root cause of Chile's inflation crisis, consider available policy solutions, and determine a course of action that is both politically feasible and well-suited to stabilize the economy.
The case describes potential contributing factors of and responses to inflation, including monetary and fiscal policies. This includes a series of pandemic-related government stimulus checks and one-time pension fund withdrawals. Globally, price shocks stemming from Russia's invasion of Ukraine and the slowing of trade with China due to COVID lockdowns further exacerbated stresses on the Chilean economy.
The case ends in April 2022, with the young, progressive President Boric one month into his first term and facing immense pressure to identify the root cause of the crisis and establish a course of action that will mitigate inflation, despite having minimal Congressional support.
This case is paired with a brief epilogue, which reveals the correct root cause of the inflation spike and describes how the Chilean federal government responded.
Learning Objectives:
Through this case, students will:
1. Diagnose whether Chile's high inflation rates in 2022 were the result of aggregate supply or aggregate demand shocks.
2. Evaluate whether Chile's economy was overheated in 2022, and identify the indicators that support that determination.
3. Determine whether a fiscal, monetary, or social security policy solution is preferable, taking into consideration not only feasibility and timing, but also the macroeconomic and political consequences (positive and negative) of each.
