Tracking exchange rate management in Latin America

One way to track exchange‐rate deviations from its long‐run value is to examine numerical patterns in exchange rates to see if those patterns appear to have been subjected to some degree of policy management. We apply Benford's Law to exchange rates in Latin American countries, computing and comparing the distribution of exchange‐rate observed values with those of Benford's Law. For most cases we find that the exchange rate for the US dollar does not satisify Benford's Law, however this law holds when the euro is considered. This result may be explained by the fact that these countries are characterized for having different degrees of dollarization and intervention in the US dollar forex market while there is almost no policy intervention in the euro forex market. Our approach is an alternative view of how these characteristics play a role inducing deviations with respect to an implied equilibrium exchange rate.