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Mr. Yi Wu and Ulric Erickson von Allmen

policy in advanced economies and capital flows ( Larraín, 2013 ). Figure 1. Copper Price and the Peso Exchange Rate Source: Bloomberg. 3. This chapter seeks to explain the peso movements, using a simple error-correction model . The study uses weekly dollar/peso exchange rate data from October 1, 1999, when the peso became floating, to May 24, 2013. Weekly data are used because some explanatory variables are only available on weekly basis and because it helps smooth the noisy daily exchange movements. The focus on the nominal exchange rate is because it is

Mr. Yi Wu
This paper examines the factors affecting the weekly peso/dollar exchange rate movements between 1999 and 2013 using an error correction model. The model fits the historical data well. While copper price is the most important determinant of the peso exchange rate over the long run, other factors including interest rate differential, global financial distress, local pension funds’ derivative position, as well as the Federal Reserve’s quantitative easing also affect the peso in the short run. The Central Bank of Chile’s foreign exchange interventions in 2008 and 2011 had a small impact on the peso.
International Monetary Fund. Western Hemisphere Dept.

Exchange Rate C. The Analytical Framework and Data D. Empirical Results E. Summary FIGURES 1. Copper Price and the Peso Exchange Rate 2. Capital Flows 3a. What Explains Peso Movements 3b. What Explains Peso Movements 4. Actual vs. 3-Month Dynamic Simulation Forecast TABLES 1. Bilateral Correlations 2. Exchange Rate Regressions: Long-run Dynamics 3a. Exchange Rate Regressions: Short-run Dynamics 3b. Exchange Rate Regressions: Short-run Dynamics REFERENCES

Mr. Yi Wu

Front Matter Page Western Hemisphere Department Contents A. Introduction B. Possible Determinants of the Peso Exchange Rate C. The Analytical Framework and Data D. Empirical Results E. Summary References Figures 1. Copper Price and the Peso Exchange Rate 2. Capital Flows 3a. What Explains Peso Movements 3b. What Explains Peso Movements 4. Actual vs. 3-Month Dynamic Simulation Forecast Tables 1. Bilateral Correlations 2. Exchange Rate Regressions: Long-run Dynamics 3a. Exchange Rate Regressions: Short-run Dynamics 3b

Mr. Yi Wu

positions in the forward market, which would strengthen the peso in the spot market further. Granger causality tests do suggest that nonresidents’ forward position and the peso exchange rate have predicting power over each other. 5 Pension funds’ net short dollar positions in the off-shore market were much smaller, at $54 million at the same time. Ideally pension funds’ net transactions in the spot market should also be controlled for, but these are not published (and relatively small). 6 Which is the reason that Chen, Rogoff, and Rossi (2010) find that

International Monetary Fund. Western Hemisphere Dept.

What Explains Movements in the Peso/Dollar Exchange Rate? 1 This chapter examines the factors affecting the peso exchange rate. While copper price is the most important determinant over the long run, other factors including interest rate differential, global financial distress, local pension funds’ derivative position, as well as the Federal Reserve’s quantitative easing also affect the peso in the short run . A. Introduction 1. The Chilean peso has historically moved closely with copper prices . In 2012, copper accounted for 54 percent of Chile

International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper for Chile describes the postcrisis recovery experience. The recovery from the 2008–2009 global crisis has been markedly different both among advanced and emerging economies. The steady improvement in the labor wedge-distortions related to the consumption leisure decision helped support the recovery. In Chile, the growth generated by this improvement, was sufficient to overcome the relatively weak performance of efficiency (TFP). Chile’s recovery has been characterized by strong investment growth, 0.8 percentage points higher than the precrisis trend. The establishment of the Financial Stability Council in 2011 is an important step to ensure close coordination among the institutions involved in Chile’s financial prudential framework.
International Monetary Fund. Western Hemisphere Dept.

This Selected Issues paper for Chile describes the postcrisis recovery experience. The recovery from the 2008–2009 global crisis has been markedly different both among advanced and emerging economies. The steady improvement in the labor wedge-distortions related to the consumption leisure decision helped support the recovery. In Chile, the growth generated by this improvement, was sufficient to overcome the relatively weak performance of efficiency (TFP). Chile’s recovery has been characterized by strong investment growth, 0.8 percentage points higher than the precrisis trend. The establishment of the Financial Stability Council in 2011 is an important step to ensure close coordination among the institutions involved in Chile’s financial prudential framework.

International Monetary Fund. Western Hemisphere Dept.

This Selected Issues paper for Chile describes the postcrisis recovery experience. The recovery from the 2008–2009 global crisis has been markedly different both among advanced and emerging economies. The steady improvement in the labor wedge-distortions related to the consumption leisure decision helped support the recovery. In Chile, the growth generated by this improvement, was sufficient to overcome the relatively weak performance of efficiency (TFP). Chile’s recovery has been characterized by strong investment growth, 0.8 percentage points higher than the precrisis trend. The establishment of the Financial Stability Council in 2011 is an important step to ensure close coordination among the institutions involved in Chile’s financial prudential framework.