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Exchange Rate Analysis in Practice

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Author Info

  • Rodrigo Caputo
  • Marco Núñez
  • Rodrigo Valdés

Abstract

This paper describes the main tools used to analyze the exchange rate in the process of conducting and analyzing the macroeconomic policies of the Chilean Central Bank (CCB). In doing so, we first describe the main methodologies used to construct real exchange rate (RER) indices, and corroborate that the RER index regularly published by the CCB has the desired properties. Second, we discuss different concepts of RER equilibrium and review methodologies that can empirically approximate the concept of medium to long-term RER equilibrium. For all these methodologies, we report estimations of the equilibrium RER during 2005. In each case, we identify the main assumptions behind the results. Finally, we analyze some variables that describe the behavior of the exchange market, that are a complementary tool to the equilibrium RER estimates, and are useful to assess whether there is an unusual behavior or exceptional circumstances in this market.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 434.

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Date of creation: Nov 2007
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Handle: RePEc:chb:bcchwp:434

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  1. Jorge Selaive C., 2005. "Actividad del Mercado Cambiario y Movimiento del Tipo de Cambio Nominal," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 8(3), pages 75-83, December.
  2. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
  3. Kevin Cowan & David Rappoport & Jorge Selaive, 2007. "High Frequency Dynamics of the Exchange Rate in Chile," Working Papers Central Bank of Chile 433, Central Bank of Chile.
  4. David Hargreaves & Bruce White, 1999. "Measures of New Zealand's effective exchange rate," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, September.
  5. Robert E. Cumby, 1996. "Forecasting Exchange Rates and Relative Prices with the Hamburger Standard: Is What You Want What You Get With McParity?," NBER Working Papers 5675, National Bureau of Economic Research, Inc.
  6. Dominique Desruelle & Alessandro Zanello, 1997. "A Primeron the IMF's Information Notice System," IMF Working Papers 97/71, International Monetary Fund.
  7. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521460477, October.
  8. Rodrigo Caputo G. & Bernardo Dominichetti H., 2005. "Revisión Metodológica en el Cálculo del IPE e Implicancias sobre los Modelos de Serie de Tiempo Para el TCR," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 8(1), pages 77-82, April.
  9. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521466004, October.
  10. Luci Ellis, 2001. "Measuring the Real Exchange Rate: Pitfalls and Practicalities," RBA Research Discussion Papers rdp2001-04, Reserve Bank of Australia.
  11. César Calderón & Roberto Duncan, 2003. "Purchasing power parity in an emerging market economy: a long- span study for Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 30(1 Year 20), pages 103-132, June.
  12. Peter Isard, 2006. "Uncovered Interest Parity," IMF Working Papers 06/96, International Monetary Fund.
  13. Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
  14. Paul Cashin & C. John McDermott, 2006. "Parity Reversion in Real Exchange Rates: Fast, Slow, or Not at All?," IMF Staff Papers, Palgrave Macmillan, vol. 53(1), pages 5.
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Cited by:
  1. José De Gregorio, 2009. "Exchange Rates, Real Adjustment and Monetary Policy," Economic Policy Papers Central Bank of Chile 34, Central Bank of Chile.

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