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Exchange Rate Analysis in Practice

Author

Listed:
  • Rodrigo Caputo
  • Marco Núñez
  • Rodrigo Valdés

Abstract

This paper describes the main tools used to analyze the exchange rate in the process of conducting and analyzing the macroeconomic policies of the Chilean Central Bank (CCB). In doing so, we first describe the main methodologies used to construct real exchange rate (RER) indices, and corroborate that the RER index regularly published by the CCB has the desired properties. Second, we discuss different concepts of RER equilibrium and review methodologies that can empirically approximate the concept of medium to long-term RER equilibrium. For all these methodologies, we report estimations of the equilibrium RER during 2005. In each case, we identify the main assumptions behind the results. Finally, we analyze some variables that describe the behavior of the exchange market, that are a complementary tool to the equilibrium RER estimates, and are useful to assess whether there is an unusual behavior or exceptional circumstances in this market.

Suggested Citation

  • Rodrigo Caputo & Marco Núñez & Rodrigo Valdés, 2007. "Exchange Rate Analysis in Practice," Working Papers Central Bank of Chile 434, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:434
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_434.pdf
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    Cited by:

    1. José De Gregorio, 2009. "Exchange Rates, Real Adjustment and Monetary Policy," Economic Policy Papers Central Bank of Chile 34, Central Bank of Chile.
    2. Arteaga Cabrales, Carolina & Huertas-Campos, Carlos Alfonso & Olarte Armenta, Sergio, 2013. "Índice de desbalance macroeconómico," Chapters, in: Rincón-Castro, Hernán & Velasco, Andrés M. (ed.), Flujos de capitales, choques externos y respuestas de política en países emergentes, chapter 8, pages 301-336, Banco de la Republica de Colombia.
    3. Carolina Arteaga & Carlos Huertas Campos & Sergio Olarte Armenta, 2012. "Índice de Desbalance Macroeconómico," Borradores de Economia 10077, Banco de la Republica.

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