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What Explains Movements in the Peso/Dollar Exchange Rate?

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  • Yi Wu
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    Abstract

    This paper examines the factors affecting the weekly peso/dollar exchange rate movements between 1999 and 2013 using an error correction model. The model fits the historical data well. While copper price is the most important determinant of the peso exchange rate over the long run, other factors including interest rate differential, global financial distress, local pension funds’ derivative position, as well as the Federal Reserve’s quantitative easing also affect the peso in the short run. The Central Bank of Chile’s foreign exchange interventions in 2008 and 2011 had a small impact on the peso.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=40796
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/171.

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    Length: 22
    Date of creation: 18 Jul 2013
    Date of revision:
    Handle: RePEc:imf:imfwpa:13/171

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    Related research

    Keywords: Exchange rate adjustments; Chile; Copper; Commodity price fluctuations; Capital flows; Exchange rates; Currencies; Economic models; Chilean peso; foreign exchange; exchange rate movements; capital inflows; effective exchange rate; nominal effective exchange rate; spot market; dollar exchange rate; commodity prices; hedging; real exchange rate; nominal exchange rate; capital markets; capital outflows; exchange rate data; currency exchange rates; flexible exchange rate; exchange rate dynamics; local capital markets; capital mobility; strong capital inflows; spot transactions; stock exchange; net capital; exchange rate regime; floating exchange rate; index options; flexible exchange rate regime; government bonds;

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    References

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    1. Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004. "Commodity currencies and the real exchange rate," Journal of Development Economics, Elsevier, Elsevier, vol. 75(1), pages 239-268, October.
    2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1161-76, December.
    3. Kevin Cowan & David Rappoport & Jorge Selaive, 2007. "High Frequency Dynamics of the Exchange Rate in Chile," Working Papers Central Bank of Chile, Central Bank of Chile 433, Central Bank of Chile.
    4. José De Gregorio & Andrea Tokman R., 2004. "Flexible Exchange Rate Regime and Forex Interventions: The Chilean Case," Economic Policy Papers Central Bank of Chile, Central Bank of Chile 11, Central Bank of Chile.
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    Cited by:
    1. José Carreño & Paulo Cox, 2014. "Carry Trade y Turbulencias Cambiarias con el Peso Chileno," Working Papers Central Bank of Chile, Central Bank of Chile 733, Central Bank of Chile.

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