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The Effects of Nominal and Real Shocks on the Chilean Real Exchange Rate During the Nineties

  • Claudio Soto

Using structural VARs identified with long-run restrictions, this paper evaluates the importance of nominal shocks and real disturbances on the Chilean real exchange rate (RER) during the nineties. Different estimations indicate that nominal disturbances account for about 30% of the variance of the forecast error of the RER in the short run. Positive nominal shocks produce an appreciation of RER that lasts five months. The effect of real shocks depends on the nature of the shocks. A positive productivity shock appreciates the real exchange rate while a positive expenditure shock causes a real depreciation of the currency. The historical decomposition of the RER does not show periods of large misalignment.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 220.

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Date of creation: Aug 2003
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Handle: RePEc:chb:bcchwp:220
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  1. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," International Finance Discussion Papers 462, Board of Governors of the Federal Reserve System (U.S.).
  2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  3. Rodrigo Valdés, 1998. "Efectos de la Política Monetaria en Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 35(104), pages 97-125.
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