The Changing Nature of Real Exchange Rate Fluctuations. New Evidence for Inflation-Targeting Countries

Rodrigo Caputo, Gustavo Leyva () and Michael Pedersen

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: We assess the role of real and nominal shocks on the real exchange rate (RER) dynamics for a set of small open economies. In doing so, we estimate a SVAR model for five inflation targeting countries: Australia, Canada, Chile, Israel and Norway. In sharp contrast with the existing empirical evidence, we find that in most countries demand shocks tend to explain a small proportion of RER volatility for the period 1986-2011. In that period nominal shocks are relatively more important in explaining RER fluctuations. When we perform a subsample analysis, however, we can reconcile the empirical findings in the literature with our results. In particular, we conclude that the relative importance of demand shocks has been declining substantially over time. In contrast, the relative importance of nominal shocks, and in particular exchange rate shocks, increased importantly in the last decade.

Date: 2014-07
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bcentral.cl/documents/33528/133326/DTBC_730.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:730

Access Statistics for this paper

More papers in Working Papers Central Bank of Chile from Central Bank of Chile Contact information at EDIRC.
Bibliographic data for series maintained by Alvaro Castillo ().