The Aftermath of Appreciations

Ilan Goldfajn and Rodrigo Valdés

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper empirically analyzes a broad range of real exchange rate appreciation episodes. The cases are identified after compiling a large sample of monthly multilateral real exchange rates from 1960 to 1994. The objective is twofold. First, the paper studies the dynamics of appreciations, avoiding the sample selection of analyzing exclusively the crisis (or devaluation) cases. Second, the paper analyzes the mechanism by which overvaluations are corrected. In particular, we are interested in the proportion of the reversions that occur through nominal devaluations, rather than cumulative inflation differential. We calculate the probability of undoing appreciations without nominal depreciations for various degrees of misalignment. The overall conclusion is that it is very unlikely to undo large and medium appreciations without nominal devaluations.

Date: 1997-03
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Aftermath of Appreciations (1999)
Working Paper: The Aftermath of Appreciations (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:02

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