Drivers of Peru's Equilibrium Real Exchange Rate: Is the Nuevo Sol a Commodity Currency?

29 Pages Posted: 7 Mar 2015

Date Written: February 2015

Abstract

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.

Keywords: Real exchange rates, Peru, Exports, Commodity prices, Real effective exchange rates, Econometric models, Foreign exchange intervention, equilibrium, currency, currencies, export commodities, consumption, economies, economy, relative price, foreign asset, foreign asset position, price of export, price indices, gold, equilibrium level, inflation, inflation differential, trade surplus, real exchange rate appreciation, world markets, exchange-rate, imbalances, foreign liabilities, tradable goods, value index, welfare, short-term volatility, advanced economies, import price, international financial statistics, price index, open economies, open economy, external debt, bilateral exchange rate, real

JEL Classification: F31, F41

Suggested Citation

Tashu, Melesse Minale, Drivers of Peru's Equilibrium Real Exchange Rate: Is the Nuevo Sol a Commodity Currency? (February 2015). IMF Working Paper No. 15/26, Available at SSRN: https://ssrn.com/abstract=2574699

Melesse Minale Tashu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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