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Overcoming Fear of Floating: Exchange Rate Policies in Chile

Author

Listed:
  • Jose De Gregorio
  • Andrea Tokman R.

Abstract

The paper reviews the exchange rate management experience in Chile, with particular emphasis on the floating exchange rate regime and its two forex intervention episodes. It presents evidence on Chile’s favorable conditions to face exchange rate shocks: a well-developed financial sector, that offers hedging opportunities taken up by the corporate sector to decrease its vulnerability through balance sheet effects; and a low and decreasing level of passthrough from the exchange rate to prices. These elements contribute to diminish the costs of the floating exchange rate regime, reducing its implied financial and price instability threat, and therefore avoiding fear of floating. Moreover, it provides enough credibility to the current exchange rate system, reinforcing the commitment to making interventions a rare event.

Suggested Citation

  • Jose De Gregorio & Andrea Tokman R., 2004. "Overcoming Fear of Floating: Exchange Rate Policies in Chile," Working Papers Central Bank of Chile 302, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:302
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Roberto Chang, 2008. "Inflation Targeting, Reserves Accumulation, and Exchange Rate Management in Latin America," BORRADORES DE ECONOMIA 004518, BANCO DE LA REPÚBLICA.
    2. repec:ilo:ilowps:397932 is not listed on IDEAS
    3. Jorge E. Restrepo & Andrea Tokman R., 2005. "Labor Markets and Institutions: An Overview," Central Banking, Analysis, and Economic Policies Book Series,in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.), Labor Markets and Institutions, edition 1, volume 8, chapter 1, pages 001-016 Central Bank of Chile.
    4. José De Gregorio & Andrea Tokman & Rodrigo Valdés, 2005. "Flexible Exchange Rate with Inflation Targeting in Chile: Experience and Issues," Research Department Publications 4427, Inter-American Development Bank, Research Department.
    5. Javier García-Cicco & Enrique Kawamura, 2014. "Central Bank Liquidity Management and “Unconventional” Monetary Policies," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2014), pages 39-87, June.
    6. Kevin Cowan & José De Gregorio, 2007. "International Borrowing, Capital Controls, and the Exchange Rate: Lessons from Chile," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 241-296 National Bureau of Economic Research, Inc.
    7. José De Gregorio & Andrea Tokman R., 2004. "Flexible Exchange Rate Regime and Forex Interventions: The Chilean Case," Economic Policy Papers Central Bank of Chile 11, Central Bank of Chile.
    8. José De Gregorio & Andrea Tokman & Rodrigo Valdés, 2005. "Tipo de Cambio Flexible con Metas de Inflación en Chile: Experiencia y Temas de Interés," Economic Policy Papers Central Bank of Chile 14, Central Bank of Chile.
    9. Rodrigo Caputo & Gustavo Leyva & Michael Pedersen, 2014. "The Changing Nature of Real Exchange Rate Fluctuations. New Evidence for Inflation-Targeting Countries," Working Papers Central Bank of Chile 730, Central Bank of Chile.
    10. José De Gregorio, 2008. "Price Stability and Financial Stability: Some Thoughts on the Current Global Financial Crisis," Economic Policy Papers Central Bank of Chile 28, Central Bank of Chile.
    11. Jose De Gregorio, 2013. "Resilience in Latin America; Lessons from Macroeconomic Management and Financial Policies," IMF Working Papers 13/259, International Monetary Fund.

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