Drivers of Peru's Equilibrium Real Exchange Rate: Is the Nuevo Sol a Commodity Currency?

Melesse Tashu

No 2015/026, IMF Working Papers from International Monetary Fund

Abstract: This paper tests the hypothesis of ‘commodity currency’ on the nuevo sol and, more generally, identifies the drivers of Peru’s equilibrium real exchange rate using a cointegration analysis. The results show that export commodity prices do not have a statistically significant impact on Peru’s real effective exchange rate, suggesting that the nuevo sol is not a commodity currency. The paper provides empirical evidence that large profit repatriation and foreign exchange intervention have effectivelly insulated Peru’s real exchange rate from the impact of commodity price shocks. Peru’s equilibrium real exchange rate is found to be driven mostly by productivity and government consumption.

Keywords: WP; nuevo sol; commodity price; Real exchange rate; Commodity prices; Foreign exchange intervention; commodity currency; export commodity; exchange rate volatility; world commodity price; export commodities for commodity; export commodity price; Real effective exchange rates; Real exchange rates; Currencies; Global (search for similar items in EconPapers)
Pages: 28
Date: 2015-02-11
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Citations: View citations in EconPapers (4)

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