Exchange Rate Policy and Exchange Rate Interventions: The Chilean Experience

13 Pages Posted: 6 Oct 2014

See all articles by Sebastián Claro

Sebastián Claro

Pontificia Universidad Catolica de Chile; Central Bank of Chile

Claudio Soto

Central Bank of Chile - Macroeconomic Analysis Unit

Date Written: October 2013

Abstract

In this paper we review Chile’s experience with exchange rate flexibility since the early 2000s. Since the abandonment of the target zone for the exchange rate at the end of the 1990s, the Central Bank of Chile has been strongly committed to exchange rate flexibility, allowing the exchange rate to fluctuate in response to different shocks. As a result, the floating regime in Chile has worked very well in different dimensions. In particular, we discuss how the credibility of the floating regime has significantly lowered the currency mismatch of assets and liabilities in the corporate sector and has enhanced the role played by exchange rate movements in adjusting the economy to financial and terms-of-trade shocks. In spite of its commitment to the floating regime, the Central Bank of Chile has intervened the exchange market on a few exceptional occasions. We review two of these interventions, which occurred in 2008 and 2011, discussing their mechanisms, effectiveness and potential drawbacks.

Full publication: Market Volatility and Foreign Exchange Intervention in EMEs: What Has Changed?

Keywords: exchange rates, floating, interventions, credibility

JEL Classification: E58, E61, F32

Suggested Citation

Claro, Sebastian and Soto, Claudio, Exchange Rate Policy and Exchange Rate Interventions: The Chilean Experience (October 2013). BIS Paper No. 73g, Available at SSRN: https://ssrn.com/abstract=2473993

Sebastian Claro (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Casilla 76
Correo 17
Santiago
Chile

Central Bank of Chile ( email )

Publicaciones
Huerfanos 1185
Santiago
Chile

Claudio Soto

Central Bank of Chile - Macroeconomic Analysis Unit ( email )

Chile

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