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Copper, the Real Exchange Rate and Macroeconomic Fluctuations in Chile

Author

Listed:
  • José De Gregorio
  • Felipe Labbé
Abstract
This paper examines the impact of the copper price on macroeconomic performance in Chile. We explore particular features of the Chilean business cycle focusing on economic activity and the real exchange rate. We find that the Chilean economy has become increasingly resilient to copper price shocks in the last twenty-five years, and especially during this last decade. The evidence shows that output volatility has dramatically decreased over the last twenty years, and the contribution of copper price fluctuations to output volatility has also declined. Moreover, the real exchange rate has acted as a shock absorber, and although during the last decade its short-run volatility has increased, its longrun volatility has remained stable and more recently has slightly declined. The decliningimpact of copper prices on the business cycle is due to macroeconomic policies. The evidence shows that a flexible exchange rate, a rule-based fiscal policy, and a flexible inflation targeting regime play a central role in these results.

Suggested Citation

  • José De Gregorio & Felipe Labbé, 2011. "Copper, the Real Exchange Rate and Macroeconomic Fluctuations in Chile," Working Papers Central Bank of Chile 640, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:640
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_640.pdf
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    References listed on IDEAS

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