IMF Working Papers

Comfort in Floating: Taking Stock of Twenty Years of Freely-Floating Exchange Rate in Chile

By Elías Albagli, Mauricio Calani, Metodij Hadzi-Vaskov, Mario Marcel, Luca A Ricci

June 19, 2020

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Elías Albagli, Mauricio Calani, Metodij Hadzi-Vaskov, Mario Marcel, and Luca A Ricci. Comfort in Floating: Taking Stock of Twenty Years of Freely-Floating Exchange Rate in Chile, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Chile offers an example of a country that has overcome the fear of floating by reducing balance sheet mismatches, enhancing financial market development, as well as improving monetary, fiscal, and political institutions, and strengthening policy credibility. Under the floating regime, Chile’s economic adjustment to external shocks appears significantly improved, and its exchange rate pass-through has substantially declined. Our results reinforce the case that moving to a clear and credible floating regime can be associated with a reduction in the fear of floating via economic transformation (like smaller balance sheet mismatches, a larger hedging market, and a lower exchange rate pass-through).

Subject: Currencies, Exchange rate arrangements, Exchange rates, Financial crises, Financial statements, Foreign exchange, Money, Public financial management (PFM)

Keywords: Balance sheet, Balance sheet mismatch, Central bank, Central bank independence, Chilean peso, Crisis episode, Currencies, Currency exposure, Currency mismatch, Derivative contract, Exchange rate arrangements, Exchange rate pass-through, Exchange rate regime, Exchange rates, Financial crisis, Financial statements, Firm, Foreign currency, FX derivative, FX derivatives, FX exposure, Global, Hedging, Interest rate, Monetary policy, Nominal exchange rate, Policy credibility, WP

Publication Details

  • Pages:

    48

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2020/100

  • Stock No:

    WPIEA2020100

  • ISBN:

    9781513547718

  • ISSN:

    1018-5941