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Equilibrium Real Exchange Rate in Chile: Alternative Approaches

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  • Rodrigo Caputo G.
  • Marco Núñez N

Abstract

In the monetary policy framework based on inflation targeting and a floating exchange rate, it is necessary to know the equilibrium real exchange rate (RER). This paper describes models for determining the equilibrium RER of regular use at the CBC. In particular, the purchasing power parity, macroeconomic balance, and reduced-form models are discussed. We show how these paradigms are used complementarily to report the judgment of economic policymakers. We also discuss the way in which the structural surplus rule in place, under which the state saves a large part of copper income, has tended to attenuate the previous relationship between the RER and the terms of trade. This change leads to revising the ways of implementing the reduced-form models. Specifically, we suggest that, within the current fiscal policy framework, one of the fundamentals of the RER are the non-copper terms of trade rather than the aggregate terms of trade.

Suggested Citation

  • Rodrigo Caputo G. & Marco Núñez N, 2008. "Equilibrium Real Exchange Rate in Chile: Alternative Approaches," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(2), pages 59-77, August.
    • Handle: RePEc:chb:bcchec:v:11:y:2008:i:2:p:59-77
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    References listed on IDEAS

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    Cited by:

    1. Camila Figueroa & Jorge Fornero & Pablo García, 2019. "Hindsight vs. Real time measurement of the output gap: Implications for the Phillips curve in the Chilean Case," Working Papers Central Bank of Chile 854, Central Bank of Chile.
    2. Jair Ojeda Joya & Joan Granados & Carolina Arteaga, 2013. "El comportamiento del tipo de cambio real en Colombia: ¿explicado por sus fundamentales?," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 31(72), pages 1-17.
    3. Andrea Salazar-Díaz & Aarón Levi Garavito-Acosta & Sergio Restrepo Ángel & Leidy Viviana Arcila-Agudelo, 2023. "Real Equilibrium Exchange Rate in Colombia: Thousands of VEC Models Approach," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 99, pages 33-78, July-Dece.

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