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

Author/Editor:

Elías Albagli ; Mauricio Calani ; Metodij Hadzi-Vaskov ; Mario Marcel ; Luca A Ricci

Publication Date:

June 19, 2020

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

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).

Series:

Working Paper No. 20/100

Subject:

English

Publication Date:

June 19, 2020

ISBN/ISSN:

9781513547718/1018-5941

Stock No:

WPIEA2020100

Format:

Paper

Pages:

48

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