What Explains Movements in the Peso/Dollar Exchange Rate?

Author/Editor:

Yi Wu

Publication Date:

July 18, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 13/171

Subject:

English

Publication Date:

July 18, 2013

ISBN/ISSN:

9781484393611/1018-5941

Stock No:

WPIEA2013171

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

22

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