Exchange rate policy in Chile: from the band to floating and beyond
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2002Metadata
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Morandé Lavín, Felipe
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Exchange rate policy in Chile: from the band to floating and beyond
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Abstract
With the exemption of adopting a foreign currency, Chile has experienced virtually all
the menu of options of exchange rate policies in the last 40 years. The quest for a reasonable
exchange rate policy has been inspired in part by the different goals that, through time, policy
makers have attempted to achieve with this policy. After almost of decade of co-existence of
inflation targeting and an exchange rate band, in 1999 the Central Bank of Chile gave up the
exchange rate band and replaced it with a policy of floating. This paper confronts two main
questions: (a) Why was the band abandoned and, by the same token, why it took so long to do it
and (b) How has the floating regime worked so far? This last question involves accounting for
the possible appearance of “fear of floating” by the macroeconomic authorities, as well as
evaluating the regime in three critical issues: exchange rate passthrough to domestic prices,
exchange rate volatility and balance sheet effects. In the final section, the paper illustrates the
operation of the exchange rate system in the face of regional contagion effects.
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URI: https://repositorio.uchile.cl/handle/2250/144775
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Serie Documentos de Trabajo No. 183 Marzo 2002
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