Overcoming Fear of Floating: Exchange Rate Policies in Chile.

Preprint OPEN
Jose De Gregorio ; Andrea Tokman R. (2004)

The paper reviews the exchange rate management experience in Chile, with particular emphasis on the floating exchange rate regime and its two forex intervention episodes. It presents evidence on Chile’s favorable conditions to face exchange rate shocks: a well-developed financial sector, that offers hedging opportunities taken up by the corporate sector to decrease its vulnerability through balance sheet effects; and a low and decreasing level of passthrough from the exchange rate to prices. These elements contribute to diminish the costs of the floating exchange rate regime, reducing its implied financial and price instability threat, and therefore avoiding fear of floating. Moreover, it provides enough credibility to the current exchange rate system, reinforcing the commitment to making interventions a rare event.
  • References (9)

    [1] Aizenman, J. (2004). “Endogenous Pricing to Market and Financing Costs” Journal of Monetary Economics No.51(4): 691-712.

    [2] Alarcón, F., A. Lynch, P. Rodriguez, J. Selaive, and JM. Villena (2004). “Mercado de Derivados Cambiarios de Chile”. Mimeo, Banco Central de Chile.

    [3] Banco Central de Chile (2003). “Modelos Macroeconómicos y Proyecciones del Banco Central de Chile 2003.”

    [4] Bleakey, C y K. Cowan (2002). “Corporate Dollar Debt and Depreciations: Much Ado About Nothing?” Reserva Federal de Boston, Documento de Trabajo No. 02-5.

    [5] Borensztein, E., and J. De Gregorio (1999). “Inflation and Devaluation after Currency Crises”. Mimeo, Fondo Monetario Internacional.

    [6] Bravo, H y C. García (2002). “Medición de la Política Monetaria y el Traspaso (Passthrough) en Chile.” Economía Chilena 5(3): 5-28.

    [7] Burstein, A., M. Eichenbaum and S. Rebelo (2002). “Why are Rates of Inflation so Low after Large Devaluations”. NBER Documento de Trabajo No. 8748.

    [8] Calvo, G. (1999) “Fixed versus Flexible Exchange Rates: Preliminaries of a Turn-ofMillenium Research”. Universidad de Maryland, mimeo.

    [54]Tapia, M y A. Tokman (2004). “Effects of Foreign Exchange Information Under Public Information: The Chilean Case.” Economia No.4: 215-56.

  • Metrics
    No metrics available
Share - Bookmark