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In this paper, we develop a daily-frequency measure of economic and policy uncertainty for Chile, employing information obtained from Twitter accounts using web scraping techniques and following closely the methodology proposed by Baker et al. (2016). Our proposed measure, called DEPUC, aims to capture the level of general disagreement -a proxy for economic and policy uncertainty-in topics such as the economy, economic policies, uncertainty about particular events, and Chile's conjuncture situation. The index, available from 2012 onwards, shows significant hikes that coincide with several local and international episodes that provoked extraordinary levels of uncertainty in Chile, especially after the events around the civil protests in mid-October 2019 and the start of the COVID-19 pandemic in mid-March 2020. An empirical exercise reveals that the proposed measure is a significant determinant of the nominal exchange rate dynamics, especially when this variable's magnitude is high and a week after the shock occurs. On the contrary, when the exchange rate is low, the impact of uncertainty on this variable is quantitatively smaller for any forecasting horizon. These features, and others discussed in the paper, highlight the usefulness of the proposed metric as an additional indicator that policymakers can incorporate into their monitoring toolkit. [ABSTRACT FROM AUTHOR]

This paper examines the role of the exchange rate in Peru using a stochastic model for a small open economy that is identified through a structural model with autoregressive vectors (SVAR) with long term restrictions to the Blanchard and Quah. The decomposition of variance indicates that the This paper examines the role of the exchange rate in Peru using a stochastic model for a small open economy that is identified through a structural model with autoregressive vectors (SVAR) with long term restrictions to the Blanchard and Quah. The decomposition of variance indicates that the real supply and demand shocks are the main source of fluctuations in the economic cycles in Peru and that, as the quarters pass, they are gaining relevance in explaining the movements of the exchange rate. These results suggest that the exchange rate plays a role in absorbing the real shocks that affect the Peruvian economy. [ABSTRACT FROM AUTHOR]

This paper analyzes the role of the exchange rate in Mexico during the inflation targeting regime. The framework is based on the New Keynesian Macroeconomics, and the empirical evidence in the estimation of a Vector Error Correction model and the statistical analysis of the inflation targeting in Mexico and Latin America. The results describe to the Mexico's monetary policy as a hybrid system, where the nominal interest rate (policy instrument) and appreciations of the real exchange rate (intermediate instrument), have as their primary objective, the inflation stabilization within a numerical goal. [ABSTRACT FROM AUTHOR]

This paper attempts to provide a comprehensive overview on the theoretical and empirical analysis of the selection and assessment of exchange rate regimes. The literature can be divided into two main groups: classical and modern. The first group refers to earlier studies examining the differences between floating and fixed exchange rate regimes. The second group is focused on the trade-off between credibility and flexibility, the economic performance and currency crisis, among others. In addition, this paper reviews why many countries follow de facto regimes different from their de jure regimes. [ABSTRACT FROM AUTHOR]

This paper provides, via Monte Carlo simulations, estimates of the classical probability of overfitting under an autoregressive environment (AR), using the information criteria (IC) of Akaike, Schwarz and Hannan-Quinn (AIC, BIC and HQ), calibrated with Chilean data of total inflation, core inflation, IMACEC, and monthly return of the nominal exchange rate Chilean peso- American dollar. This probability corresponds to the number of times when a candidate model has a strictly greater number of coefficients than the true model, divided by the total number of searches. The results indicate that the increased risk of overfitting is obtained with the AIC, followed by HQ and finally the BIC. The highest probability of overfitting is achieved with the AIC, reaching 32 and 30% with the exchange rate and IMACEC, respectively, followed by 25 and 22% for total and core inflation. Considering the three IC, it is more likely to obtain an overfitted model by just one coefficient. Also, it is more likely that the overfitting does not exceed 10 coefficients. These results are important as quantifying the extent to which these variables are subject to overfitting risk when represented by AR models. The potential problems carried by overfitting includes: (i) the spurious regression, (ii) distort the estimation of impulse response function, and (iii) affect the predictive accuracy of the variable of interest. The latter problem is analyzed in detail. [ABSTRACT FROM AUTHOR]

Trade data shows that real exchange rate fluctuates more than other variables such as consumption and GDP, and also presents significant deviations from the Law of One Price. In light of these facts, this paper develops and estimates a non-monetary DSGE model under financial autarky for the international trade of goods and services between Chile and the U.S. In this context, the higher volatility of the real exchange rate is explained by the existence of transaction costs and varying degrees of imperfect substitution in consumption between home and foreign goods which endogenously induce a home bias effect. The results reveal that the estimated transaction costs and the asymmetric home bias effect content in the data would be responsible for the low correlation between consumption in both countries and the higher real exchange rate fluctuations. Finally, the model is able to replicate much of the stylized facts observed in the data, but fails to address the Backus-Smith puzzle. [ABSTRACT FROM AUTHOR]

There is substantial evidence suggesting that central banks in open economies react to exchange rate fluctuations, in addition to expected inflation and output. In some developing countries this reaction is comparatively larger and it is nonlinear . In an estimated structural macromodel for Chile, this paper assesses the advantages and potential costs of adopting such a reaction function. We conclude that, in the face of most of the external shocks, a policy rule that responds to exchange rate misalignments smooths inflation and output variability, while marginally increasing interest rate fluctuations. On the other hand, for some domestic innovations such a rule performs poorly. When all the shocks are considered at the same time, this rule generates important welfare gains. Finally, when the volatility of external shocks rises, increasing the response to exchange rate misalignments brings welfare improvements. In fact, a more aggressive response to the exchange rate offsets the impact that greater external volatility has on output and inflation, at the cost of inducing higher interest rate fluctuations. In this way, one can interpret the nonlinear reaction to the exchange rate as an optimal response to a more volatile external environment. [ABSTRACT FROM AUTHOR]