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Exchange Rate Policy in Chile: the Abandonment of the Band and the Floating Experience

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Author Info
Felipe Morandé L.
Matías Tapia G.

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Abstract

As many countries worldwide, Chile has experienced virtually all the menu of options of exchange rate policies in the last forty years—with the sole exception of giving up its national currency. The quest for a reasonable exchange rate policy has been inspired in part by the different goals that, throughout these four decades, policymakers have attempted to achieve with this policy. After almost a decade of inflation targeting coexisting with an exchange rate band, in 1999 the Central Bank of Chile gave up the band and replaced it with a policy of floating. This paper deals with two main questions: (a) Why was the band abandoned and, by the same token, why did it last so long? and (b) How has the floating regime worked so far? The latter question involves accounting for the possible appearance of “fear of floating” by macroeconomic authorities, as well as evaluating the regime in three issues highlighted by the critics of exchange rate floating: passthrough to domestic prices, exchange rate volatility and balance sheet effects.

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Publisher Info
Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 5 (2002)
Issue (Month): 3 (December)
Pages: 67-94
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Handle: RePEc:chb:bcchec:v:5:y:2002:i:3:p:67-94

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
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  4. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, vol. 67(4), pages 537-48, September. [Downloadable!] (restricted)
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  11. Todd E. Clark, 1999. "The Responses Of Prices At Different Stages Of Production To Monetary Policy Shocks," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 420-433, August. [Downloadable!] (restricted)
    Other versions:
  12. Felipe Morandé & Klaus Schmidt-Hebbel, 2000. "Chile's Peso: Better Than (Just) Living with the Dollar?," Working Papers Central Bank of Chile 68, Central Bank of Chile. [Downloadable!]
    Other versions:
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    Other versions:
  14. Carlos José García & Jorge Enrique Restrepo, 2001. "Price Inflation and Exchange Rate Pass-Through in Chile," Working Papers Central Bank of Chile 128, Central Bank of Chile. [Downloadable!]
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    Other versions:
  17. George Allayannis & Jane Ihrig & James P. Weston, 2001. "Exchange-Rate Hedging: Financial versus Operational Strategies," American Economic Review, American Economic Association, vol. 91(2), pages 391-395, May. [Downloadable!] (restricted)
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  21. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. Calvo, Guillermo A. & Mendoza, Enrique, 1998. "Empirical Puzzles of Chilean Stabilization Policy," Working Papers 98-02, Duke University, Department of Economics. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luis Felipe Céspedes & Ilan Goldfajn & Phil Lowe & Rodrigo Valdés, 2005. "Policy Responses to External Shocks: The Experiences of Australia, Brazil and Chile," Working Papers Central Bank of Chile 321, Central Bank of Chile. [Downloadable!]
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