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Econometrics 2017, 5(3), 29; doi:10.3390/econometrics5030029

Modeling Real Exchange Rate Persistence in Chile

Department of Economics and Finance, Universtiy of Bío-Bío, Avenida Collao 1202, Concepción, Chile
Academic Editor: Katarina Juselius
Received: 28 February 2017 / Revised: 14 June 2017 / Accepted: 30 June 2017 / Published: 7 July 2017
(This article belongs to the Special Issue Recent Developments in Cointegration)
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Abstract

The long and persistent swings in the real exchange rate have for a long time puzzled economists. Recent models built on imperfect knowledge economics seem to provide a theoretical explanation for this persistence. Empirical results, based on a cointegrated vector autoregressive (CVAR) model, provide evidence of error-increasing behavior in prices and interest rates, which is consistent with the persistence observed in the data. The movements in the real exchange rate are compensated by movements in the interest rate spread, which restores the equilibrium in the product market when the real exchange rate moves away from its long-run benchmark value. Fluctuations in the copper price also explain the deviations of the real exchange rate from its long-run equilibrium value. View Full-Text
Keywords: exchange rate; long swings; I(2) analysis exchange rate; long swings; I(2) analysis
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Salazar, L. Modeling Real Exchange Rate Persistence in Chile. Econometrics 2017, 5, 29.

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