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Comfort in Floating: Taking Stock of Twenty Years of Freely-Floating Exchange Rate in Chile

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  • Albagli, Elias
  • Calani, Mauricio
  • Hadzi-Vaskov, Metodij
  • Marcel, Mario
  • Ricci, Luca Antonio

Abstract

Chile offers an example of a country that has overcome the fear of floating by reducing balance sheet mismatches, enhancing financial market development, as well as improving monetary, fiscal, and political institutions, and strengthening policy credibility. Under the floating regime, Chile's economic adjustment to external shocks appears significantly improved, and its exchange rate pass-through has substantially declined. Our results reinforce the case that moving to a clear and credible floating regime can be associated with a reduction in the fear of floating via economic transformation (like smaller balance sheet mismatches, a larger hedging market, and a lower exchange rate pass-through).

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  • Albagli, Elias & Calani, Mauricio & Hadzi-Vaskov, Metodij & Marcel, Mario & Ricci, Luca Antonio, 2020. "Comfort in Floating: Taking Stock of Twenty Years of Freely-Floating Exchange Rate in Chile," CEPR Discussion Papers 14967, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14967
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    Cited by:

    1. International Monetary Fund, 2021. "Chile: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Chile," IMF Staff Country Reports 2021/083, International Monetary Fund.
    2. Hadzi-Vaskov, Metodij & Ricci, Luca Antonio, 2021. "Understanding Chile's Social Unrest in an International Perspective," CEPR Discussion Papers 16494, C.E.P.R. Discussion Papers.
    3. Mr. Balazs Csonto & Tryggvi Gudmundsson, 2020. "Destabilizing Stability? Exchange Rate Arrangements and Foreign Currency Debt," IMF Working Papers 2020/173, International Monetary Fund.
    4. Carlos Madeira, 2022. "The evolution of macroprudential policy use in Chile, Latin America and the OECD," Working Papers Central Bank of Chile 958, Central Bank of Chile.

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    More about this item

    Keywords

    central bank independence; exchange rate pass-through; Exchange Rate Regime; FX derivatives; Hedging; Policy Credibility;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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