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Drivers of Peru's Equilibrium Real Exchange Rate

Drivers of Peru's Equilibrium Real Exchange Rate PDF Author: Melesse Tashu
Publisher: International Monetary Fund
ISBN: 1498379834
Category : Business & Economics
Languages : en
Pages : 28

Book Description
This paper tests the hypothesis of ‘commodity currency’ on the nuevo sol and, more generally, identifies the drivers of Peru’s equilibrium real exchange rate using a cointegration analysis. The results show that export commodity prices do not have a statistically significant impact on Peru’s real effective exchange rate, suggesting that the nuevo sol is not a commodity currency. The paper provides empirical evidence that large profit repatriation and foreign exchange intervention have effectivelly insulated Peru’s real exchange rate from the impact of commodity price shocks. Peru’s equilibrium real exchange rate is found to be driven mostly by productivity and government consumption.
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