Tracking the Exchange Rate in Latin America

Produced by: 
Banco Central del Perú
Available from: 
December 2014
Paper author(s): 
César Carrera (Banco Central de Reserva del Perú)
Topic: 
Financial Economics
Theory
Year: 
2015

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 compute the distribution of exchange-rate observed values and compare them with those of Benford’s law. I document such cases for 15 Latin American countries, for the two most widely traded currencies. Latin American countries are small open economies that are characterized for having different degrees of dollarization and intervention in the forex market. This is an alternative view of how these characteristics play a role with respect to an implied equilibrium exchange rate.

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