Abstract:The exchange rate is one of the most important prices in any open economy. Tracking deviations from its long-run value may provide important information for policymakers. One way to track such deviations is to examine numerical patterns in exchange rates to see if the patterns appear to have been subject to some degree of policy management. Following this approach, we use Benford's Law as our base case for free-floating exchange rates. Benford's Law argues that the frequence of the appearance of numerals finds 1's more frequent, than 2's, than 3's, etc., and this established statistical patterns has been verified and used in research tests in many scientific fields. We apply our forensic approach to exchange rates, computing the distribution of exchange-rate observed values and comparing them with those of Benford's Law. We document such cases for 15 Latin American countries. Latin American countries are small open economies that are characterized for having different degrees of dollarization and intervention in the forex market, primary based on US dollar transactions. This is an alternative view of how these characteristics play a role with respect to an implied equilibrium exchange rate.
JEL Classification: C16, F31, F41
Most emerging economies have been affected to some degree by the Fed’s quantitative easing (QE) policies. This paper assesses the impact of these measures in terms of key macroeconomic variables for four inflation-targeting small open economies in Latin America. We identify a QE policy shock in a structural vector autoregressive with block exogeneity and a mixture of zero and sign restrictions. Overall, we find that these QE policies have significant effects on financial variables such as the exchange rate, and these effects are larger with respect to those in output and prices. Furthermore, the effects vary across countries, and these are more significant in Chile and Mexico than in Peru and Colombia.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.