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Title: |
Determinants of the Exchange Rate Regime: A Time Series Analysis for
Chile |
| Author: |
Leon, Javier;
Oliva, Carlos |
| Author
Affiliation: |
Inter-American Development Bank |
| Source: |
International Economic Journal, Summer 1999, v. 13, no. 2, pp. 89-102 |
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Publication Date: |
Summer 1999 |
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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 empirical
results show that: (i) Chile opted for a fixed exchange rate regime as
an anchor when domestic inflation was relatively high with respect to
world inflation, and (ii) minimizing real consumption variability rather
than real output variability was a dominant target for Chilean
authorities, with domestic monetary disturbances favoring a more
flexible arrangement, while real shocks were absorbed by changes in the
balance of payments supporting a fixed regime. |
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