IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Deviation of the purchasing power parity hypothesis and equilibrium real exchange rate: Chile 1986-2011

  • Jorge Miranda P.

The fact that the Purchasing Power Parity hypothesis (PPP) is not confirmed in the short and medium term is a widely discussed macroeconomic puzzle. The evidence for the Chilean economy suggests that only in the very long term it is possible to find evidence in favor of the PPP hypothesis. The main causes of these deviations from the law of a unique price would be short term nominal rigidities, changes in the exchange rate regime and structural breaks in RER. These deviations could impact the measurement of the equilibrium RER, and therefore the understanding of the RER dynamics becomes of particular relevance in terms of economic policy. This paper studies the RER dynamics, finding evidence of a potential structural break in its trajectory between the years 1998 and 1999. The cause of the break would be related to the implementation of the inflation targeting cum flexible exchange rate regime. Through the resolution of a DSGE model estimated for Chile, I propose an alternative methodology for the calculation of the equilibrium RER.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bcentral.cl/eng/studies/economia-chilena/2013/dec/recv16n3dic2013pp4-31.pdf
Download Restriction: no

Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 16 (2013)
Issue (Month): 3 (December)
Pages: 04-31

as
in new window

Handle: RePEc:chb:bcchec:v:16:y:2013:i:3:p:04-31
Contact details of provider: Postal: Casilla No967, Santiago
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  2. Tauchen, George E. & Gallant, A. Ronald, 1995. "Which Moments to Match," Working Papers 95-20, Duke University, Department of Economics.
  3. 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.
  4. Bruce E. Hansen, 1998. "Testing for Structural Change in Conditional Models," Boston College Working Papers in Economics 310., Boston College Department of Economics.
  5. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  6. 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.
  7. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
  8. Klaus Schmidt-Hebbel, 2006. "La Gran Transición de Regímenes Cambiarios y Monetarios en América Latina," Economic Policy Papers Central Bank of Chile 17, Central Bank of Chile.
  9. Alan M. Taylor, 2002. "A Century Of Purchasing-Power Parity," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 139-150, February.
  10. 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.
  11. Andrea Tokman & Rodrigo Valdés & José De Gregorio, 2005. "Flexible Exchange Rate with Inflation Targeting in Chile: Experience and Issues," IDB Publications (Working Papers) 6696, Inter-American Development Bank.
  12. Rodrigo Caputo G. & Marco Núñez N. & Rodrigo Valdés P., 2008. "Análisis del tipo de cambio en la práctica," Investigación Conjunta - español, in: Centro de Estudios Monetarios Latinoamericanos (CEMLA) (ed.), Estimación y Uso de Variables no Observables en la Región, edition 1, volume 1, chapter 11, pages 313-364 Centro de Estudios Monetarios Latinoamericanos, CEMLA.
  13. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  14. Alvaro Aguirre & César Calderón, 2005. "Real Exchange Rate Misalignments and Economic Performance," Working Papers Central Bank of Chile 316, Central Bank of Chile.
  15. Hegwood, Natalie D & Papell, David H, 1998. "Quasi Purchasing Power Parity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-89, October.
  16. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:chb:bcchec:v:16:y:2013:i:3:p:04-31. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.