DETERMINANTS OF THE EXCHANGE RATE REGIME: A TIME SERIES ANALYSIS FOR CHILE

Authors: LEóN, JAVIER; OLIVA, CARLOS

Source: International Economic Journal, Volume 13, Number 2, Number 2/Summer 1999 , pp. 89-102(14)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

The objective of this paper is to examine the determinants of the exchange rate regime within a time series approach, in order to overcome limitations of the cross-section approach. The former approach is based upon the assumption that policy makers would not change the regime until the long term benefits would exceed the cost of the switch. This would imply some inertia in regimes that will be better captured by a time series analysis. The emirical results show that: (i) Chile opted for a fixed exchange rate regime as an anchor when domestic inflation was relatively high with respect to word inflation, (ii) minimizing real consumption variability rather than real output variability was a dominant target for Chilean authorities, with domestic monetary disturbances favouring a more flexible arrangement, while real shocks were absorbed by changes in the balance of payments supporting a fixed regime. [F31, F32]

Document Type: Research article

DOI: http://dx.doi.org/10.1080/10168739900080015

Affiliations: 1: Inter-American Development Bank

Publication date: 1999-06-01