Exchange Rate Policy in Chile since 1960: Political Economy and the Choice of Regime

This paper analyzes exchange rate policies in Chile since the 1960s. A brief overview of main policies is presented. Particular attention is paid to the two episodes of fixed-exchange rate as well as the reasons why policy makers may have arrived to those decisions. The paper also examines the long Chilean tradition of using a crawling peg to preserve competitiveness and as a quick exit during times of crisis. More specifically, this paper attempts to uncover political economy factors that may have influenced decisions on exchange rate policy. Empirical evidence on the economic environment during different episodes of exchange rate management as well as the political economy factors that may haveinfluenced the options are presented.

Copper, the Real Exchange Rate and Macroeconomic Fluctuations in Chile

This paper examines the impact of the copper price on macroeconomic performance in Chile. We explore particular features of the Chilean business cycle focusing on economic activity and the real exchange rate. We find that the Chilean economy has become increasingly resilient to copper price shocks in the last twenty-five years, and especially during this last decade. The evidence shows that output volatility has dramatically decreased over the last twenty years, and the contribution of copper price fluctuations to output volatility has also declined. Moreover, the real exchange rate has acted as a shock absorber, and although during the last decade its short-run volatility has increased, its longrun volatility has remained stable and more recently has slightly declined. The decliningimpact of copper prices on the business cycle is due to macroeconomic policies. The evidence shows that a flexible exchange rate, a rule-based fiscal policy, and a flexible inflation targeting regime play a central role in these results.