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Overcoming Fear of Floating: Exchange Rate Policies in Chile

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Author Info
Jose De Gregorio
Andrea Tokman R.

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Abstract

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.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 302.

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Date of creation: Dec 2004
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Handle: RePEc:chb:bcchwp:302

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  2. Stephen Chiu, 2002. "Signaling versus Commitment Strengthening: Exchange Rate Insurance against Currency Attacks," Working Papers 202002, Hong Kong Institute for Monetary Research. [Downloadable!]
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  4. Matías Tapia & Andrea Tokman, 2004. "Effects of Foreign Exchange Intervention Under Public Information: the Chilean Case," Working Papers Central Bank of Chile 255, Central Bank of Chile. [Downloadable!]
  5. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December. [Downloadable!] (restricted)
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  6. Jose De Gregorio, 2002. "Macroeconomic Management in Emerging Economies and the International Financial Architecture," Working Papers Central Bank of Chile 163, Central Bank of Chile. [Downloadable!]
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  7. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "New directions for stochastic open economy models," Journal of International Economics, Elsevier, vol. 50(1), pages 117-153, February. [Downloadable!] (restricted)
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  8. Lucio Sarno & Mark P. Taylor, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September. [Downloadable!] (restricted)
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  9. Ramana Ramaswamy & Hossein Samiei, 2000. "The Yen-Dollar Rate - Have Interventions Mattered?," IMF Working Papers 00/95, International Monetary Fund.
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  12. Aizenman, Joshua, 2004. "Endogenous pricing to market and financing costs," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 691-712, May. [Downloadable!] (restricted)
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  13. Sebastian Edwards, 2002. "The Great Exchange Rate Debate after Argentina," Working Papers 74, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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  15. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May. [Downloadable!] (restricted)
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  16. Felipe G. Morandé & Matías Tapia, 2002. "Exchange Rate Policy in Chile: From the Band to Floating and Beyond," Working Papers Central Bank of Chile 152, Central Bank of Chile. [Downloadable!]
  17. Leitemo, Kai & Soderstrom, Ulf, 2005. "Simple monetary policy rules and exchange rate uncertainty," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 481-507, April. [Downloadable!] (restricted)
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  18. Hoyt Bleakley & Kevin Cowan, 2002. "Corporate dollar debt and depreciations: much ado about nothing?," Working Papers 02-5, Federal Reserve Bank of Boston. [Downloadable!]
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  19. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August. [Downloadable!] (restricted)
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  21. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December. [Downloadable!] (restricted)
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  24. repec:fth:inadeb:418 is not listed on IDEAS
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  26. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  27. John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, vol. 91(2), pages 263-267, May. [Downloadable!] (restricted)
  28. Kevin Cowan & Jose De Gregorio, 2005. "International Borrowing, Capital Controls and the Exchange Rate: Lessons from Chile," Working Papers Central Bank of Chile 322, Central Bank of Chile. [Downloadable!]
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  29. Kevin Cowan & Erwin Hansen & Luis Oscar Herrera, 2005. "Currency Mismatches, Balance Sheet Effects and Hedging in Chilean non-Financial Corporations," Working Papers Central Bank of Chile 346, Central Bank of Chile. [Downloadable!]
  30. Joseph E. Gagnon & Jane Ihrig, 2001. "Monetary policy and exchange rate pass-through," International Finance Discussion Papers 704, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  31. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August. [Downloadable!] (restricted)
  32. Esteban Jadresic & Jorge Selaive, 2005. "Is The FX Derivatives Market Effective and Efficient in Reducing Currency Risk?," Working Papers Central Bank of Chile 325, Central Bank of Chile. [Downloadable!]
  33. Dalia Hakura & Ehsan U. Choudhri, 2001. "Exchange Rate Pass-Through to Domestic Prices: Does the Inflationary Environment Matter?," IMF Working Papers 01/194, International Monetary Fund. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. José De Gregorio & Andrea Tokman R., 2004. "Flexible Exchange Rate Regime and Forex Interventions: The Chilean Case," Economic Policy Papers Central Bank of Chile 11, Central Bank of Chile. [Downloadable!]
  2. Kevin Cowan & Jose De Gregorio, 2005. "International Borrowing, Capital Controls and the Exchange Rate: Lessons from Chile," NBER Working Papers 11382, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Roberto Chang, 2008. "Inflation Targeting, Reserves Accumulation, and Exchange Rate Management in Latin America," BORRADORES DE ECONOMIA 004518, BANCO DE LA REPÚBLICA. [Downloadable!]
    Other versions:
  4. José De Gregorio & Andrea Tokman & Rodrigo Valdés, 2005. "Tipo de Cambio Flexible con Metas de Inflación en Chile: Experiencia y Temas de Interés," Economic Policy Papers Central Bank of Chile 14, Central Bank of Chile. [Downloadable!]
  5. José De Gregorio & Andrea Tokman & Rodrigo Valdés, 2005. "Tipo de cambio flexible y fijación de metas inflacionarias en Chile: experiencia y aspectos resaltantes," RES Working Papers 4428, Inter-American Development Bank, Research Department. [Downloadable!]
  6. Carlos A. Ibarra, 2007. "Is Latin America Overcoming its Fear of Floating?," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(130), pages 183-209. [Downloadable!]
  7. José De Gregorio & Andrea Tokman & Rodrigo Valdés, 2005. "Flexible Exchange Rate with Inflation Targeting in Chile: Experience and Issues," RES Working Papers 4427, Inter-American Development Bank, Research Department. [Downloadable!]
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