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Determinants of the Exchange Rate Regime: A Time Series Analysis for Chile

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  • Leon Javoer

Abstract

The objective of this paper is to examine the determinants of the exchange rate regime within a time series approach, in order to overcome limitations of the cross-section approach. The former approach is based upon the assumption that policy makers would not change the regime until the long term benefits would exceed the cost of the switch. This would imply some inertia in regimes that will be better captured by a time series analysis. The empirical results show that: (i) Chile opted captured by a time series analysis. The empirical results show that: (i) Chile opted for a fixed exchange rate regime as an anchor when domestic inflation was relatively high with respect to world inflation, and (ii) minimizing real consumption variability rather than real output variability was a dominant target for Chilean authorities, with domestic monetary disturbances favoring a more flexible arrangement, while real shocks were absorbed by changes in the balanced of payments supporting a fixed regime. [F31,F32]

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  • Leon Javoer, 1999. "Determinants of the Exchange Rate Regime: A Time Series Analysis for Chile," International Economic Journal, Taylor & Francis Journals, vol. 13(2), pages 89-102.
    • Handle: RePEc:taf:intecj:v:13:y:1999:i:2:p:89-102
    DOI: 10.1080/10168739900000039
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