Common and idiosyncratic movements in Latin-American Exchange Rates

Fredy Gamboa-Estrada and José Romero

Borradores de Economia from Banco de la Republica de Colombia

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 on exchange rates of a regional exchange rate common factor and macroeconomic fundamentals differentials. The methodology and estimation strategy are suitable for both low and high frequency settings. We provide evidence that the regional common factor has a significant effect on 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. **** RESUMEN: En este artículo proponemos una aproximación teórica y empírica simple para diferenciar los movimientos comunes e idiosincráticos de las tasas de cambio de cinco economías latinoamericanas: Brasil, Chile, Colombia, México y Perú. Nuestra aproximación permite distinguir los efectos resultantes de un factor común regional y los diferenciales de los fundamentales macroeconómicos sobre las tasas de cambio de la región. Esta metodología y estrategia de estimación es aplicable tanto para datos de alta como de baja frecuencia. Se presenta evidencia que el factor común regional tiene un impacto significativo en la dinámica de las tasas de cambio seleccionadas. En nuestras estimaciones, la relación entre las tasas de cambio y el factor común es contemporánea y estable durante el periodo de estudio analizado.

Keywords: Exchange rate; exchange rate in Latin-American countries; factor model; forecasting and simulation; Tasas de cambio; tasas de cambio en Latinoamérica; modelos factoriales; pronósticos y simulación. (search for similar items in EconPapers)
JEL-codes: F31 F37 G17 (search for similar items in EconPapers)
Pages: 22
Date: 2021-04
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https://doi.org/10.32468/be.1158

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Journal Article: Common and idiosyncratic movements in Latin-American exchange rates (2022)
Journal Article: Common and idiosyncratic movements in Latin-American exchange rates (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1158

DOI: 10.32468/be.1158

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