A Bayesian Change Point Analysis of the USD/CLP Series in Chile from 2018 to 2020: Understanding the Impact of Social Protests and the COVID-19 Pandemic

Rolando de la Cruz (), Cristian Meza (), Nicolás Narria and Claudio Fuentes
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Rolando de la Cruz: Faculty of Engineering and Sciences, Universidad Adolfo Ibáñez, Diagonal Las Torres 2640, Peñalolén, Santiago 7941169, Chile
Cristian Meza: Instituto de Ingeniería Matemática—Centro de Investigación y Modelamiento de Fenómenos Aleatorios (CIMFAV), Facultad de Ingeniería, Universidad de Valparaíso, General Cruz 222, Valparaíso 2362905, Chile
Nicolás Narria: Instituto de Estadística, Pontificia Universidad Católica de Valparaíso, Av. Errázuriz 2734, Valparaíso 2340023, Chile
Claudio Fuentes: Department of Statistics, Oregon State University, Corvallis, OR 97331, USA

Mathematics, 2022, vol. 10, issue 18, 1-15

Abstract: Exchange rates are determined by factors such as interest rates, political stability, confidence, the current account on balance of payments, government intervention, economic growth and relative inflation rates, among other variables. In October 2019, an increased climate of citizen discontent with current social policies resulted in a series of massive protests that ignited important political changes in Chile. This event along with the global COVID-19 pandemic were two major factors that affected the value of the US dollar and produced sudden changes in the typically stable USD/CLP (Chilean Peso) exchange rate. In this paper, we use a Bayesian approach to detect and locate change points in the currency exchange rate process in order to identify and relate these points with the important dates related to the events described above. The implemented method can successfully detect the onset of the social protests, the beginning of the COVID-19 pandemic in Chile and the economic reactivation in the US and Europe. In addition, we evaluate the performance of the proposed MCMC algorithms using a simulation study implemented in Python and R.

Keywords: Bayesian estimation; COVID-19; change point analysis; currency fluctuations; exchange rates; protests in Chile (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
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