Common and idiosyncratic movements in Latin-American exchange rates

Fredy Gamboa-Estrada and José Romero

International Economics, 2022, issue 171, 174-190

Abstract: We propose a simple theoretical and empirical approach to differentiate between common and idiosyncratic exchange rate movements in 5 Latin-American economies: Brazil, Chile, Colombia, Mexico, and Peru. Our approach allows us to distinguish the effects of a regional exchange rate common factor and macroeconomic fundamentals differentials on exchange rates. The methodology and estimation strategy are suitable for both low- and high-frequency settings. We provide evidence that the regional common factor is important to assess the dynamics of the Latin-American exchange rates. In our estimations, the relation between exchange rates and the common factor is contemporaneous and stable during the studied period.

Keywords: Exchange rate; Exchange rate in Latin-American countries; Factor model Forecasting and simulation (search for similar items in EconPapers)
JEL-codes: F31 F37 G17 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Common and idiosyncratic movements in Latin-American exchange rates (2022)
Working Paper: Common and idiosyncratic movements in Latin-American Exchange Rates (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2022-q3-171-10

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