Overcoming Fear of Floating: Exchange Rate Policies in Chile
AbstractThe 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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Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 302.
Date of creation: Dec 2004
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-23 (All new papers)
- NEP-IFN-2005-01-23 (International Finance)
- NEP-LAM-2005-01-23 (Central & South America)
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- Solimano, Andrés, 2007. "Employment creation, real wages and job quality : how much aggregate economic growth delivers? The case of Chile," ILO Working Papers 397932, International Labour Organization.
- Roberto Chang, 2008.
"Inflation Targeting, Reserves Accumulation, and Exchange Rate Management in Latin America,"
BORRADORES DE ECONOMIA
004518, BANCO DE LA REPÚBLICA.
- Roberto Chang, . "Inflation Targeting, Reserves Accumulation, and Exchange Rate Management in Latin America," Borradores de Economia 487, Banco de la Republica de Colombia.
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