Chilean Peso Research Articles

Using Short Time Series of Monofractal Synthetic Fluctuations to Estimate the Foreign Exchange Rate: The Case of the US Dollar and the Chilean Peso (USD–CLP)

Short time series are fundamental in the foreign exchange market due to their ability to provide real-time information, allowing traders to react quickly to market movements, thus optimizing profits and mitigating risks. Economic transactions show a strong connection to foreign currencies, making exchange rate prediction challenging. In this study, the exchange rate estimation between the US dollar (USD) and the Chilean peso (CLP) for a short period, from 2 August 2021 to 31 August 2022, is modeled using the nonlinear Schrödinger equation (NLSE) and calculated with the fourth-order Runge–Kutta method, respectively. Additionally, the daily fluctuations of the current exchange rate are characterized using the Hurst exponent, H, and later used to generate short synthetic fluctuations to predict the USD–CLP exchange rate. The results show that the USD–CLP exchange rate can be estimated with an error of less than 5%, while when using short synthetic fluctuations, the exchange rate shows an error of less than 10%.

Forecasting base metal prices with exchange rate expectations

AbstractIn this paper, we show that survey‐based expectations of the Chilean exchange rate have the ability to predict the returns of the six primary non‐ferrous metals: aluminum, copper, lead, nickel, tin, and zinc. Predictability is also found for returns of the London Metal Exchange Index. Previous studies have shown that the Chilean exchange rate has the ability to predict copper returns, a world commodity index and base metal prices. Nevertheless, our results indicate that expectations about the Chilean peso have stronger predictive ability relative to the first lag of the Chilean currency. This is shown both in‐sample and out‐of‐sample. By focusing on expectations of a commodity currency, and not on the currency itself, our paper provides indirect but new and strong evidence of the ability that commodity currencies have to forecast commodity prices.

Does crude oil fire the emerging markets currencies contagion spillover? A systemic perspective

The paper lays the empirical foundation for the significance of Crude in explaining the variation in implied volatilities (IVs) of emerging markets nations constituting the MSCI emerging market index. Guided by the significance of Crude as a significant regressor, the study aims to investigate the association of currency IVs with Crude using a connectedness-based approach by Diebold and Yilmaz (2012). The spillover pattern highlights the strong interconnectedness of Asian currencies, with the Taiwanese dollar and Thai Baht feeding the systemic risk, thus the currencies to watch out for the policymakers. An important finding is that the Polish zloty possesses a high spillover risk in the Eastern European economies due to improved economic conditions and a large flow of capital during quantitative easing. On the other hand, Russia is a huge exporter of Crude and shares a limited spillover relationship with Crude, implying domestic macroeconomic conditions and geopolitical risk contribute more to the ruble fall. Based on the spillover pattern of IVs, a portfolio universe selection and weight allocation with dynamic balancing have been devised for investors of the forex market for spillover risk minimization. Findings show that the Chinese Yuan and Chilean Peso are the most favorable currency alongside Crude. However, Indian Rupee serves as the most promising currency pair to be inducted with Crude. The study is particularly beneficial for investors and portfolio managers investing in the forex market to induct the assets in the portfolio to mitigate systemic risk fear, especially during times of distress.

A Bayesian Change Point Analysis of the USD/CLP Series in Chile from 2018 to 2020: Understanding the Impact of Social Protests and the COVID-19 Pandemic

Exchange rates are determined by factors such as interest rates, political stability, confidence, the current account on balance of payments, government intervention, economic growth and relative inflation rates, among other variables. In October 2019, an increased climate of citizen discontent with current social policies resulted in a series of massive protests that ignited important political changes in Chile. This event along with the global COVID-19 pandemic were two major factors that affected the value of the US dollar and produced sudden changes in the typically stable USD/CLP (Chilean Peso) exchange rate. In this paper, we use a Bayesian approach to detect and locate change points in the currency exchange rate process in order to identify and relate these points with the important dates related to the events described above. The implemented method can successfully detect the onset of the social protests, the beginning of the COVID-19 pandemic in Chile and the economic reactivation in the US and Europe. In addition, we evaluate the performance of the proposed MCMC algorithms using a simulation study implemented in Python and R.

Forecasting fuel prices with the Chilean exchange rate: Going beyond the commodity currency hypothesis

In this paper we show that the Chilean exchange rate has the ability to predict the returns of oil and of three additional oil-related products: gasoline, propane and heating oil. We show this using both in- and out-of sample exercises at multiple horizons. Natural explanations for our findings rely on the well know “dollar effect” and on the present-value theory for exchange rate determination in combination with the strong co-movement displayed by fuel and metal prices. Given that the Chilean economy is heavily influenced by copper, which represents nearly 50% of total national exports, the floating Chilean Peso is importantly affected by price fluctuations in this metal. As oil-related products display an important co-movement with base metal prices, it is reasonable to expect evidence of Granger causality from the Chilean peso to these oil-related products. Interestingly, we provide sound evidence indicating that the predictive ability of the Chilean Peso goes beyond these natural explanations. In particular, we show another plausible predictive channel: volatility in combination with a negative contemporaneous leverage effect in fuel returns. Finally, we compare the Chilean peso with other commodity-currencies in their ability to predict fuel returns. The Chilean peso fares extremely well in this competition, especially at short horizons of one, three and six months.

Forecasting aluminum prices with commodity currencies

In this paper we show that the exchange rates of some commodity exporter countries have the ability to predict the price of spot and future contracts of aluminum. This is shown with both in-sample and out-of-sample analyses. The theoretical underpinning of these results relies on the present-value model for exchange rate determination and on the tight connection between some commodity prices and the currencies of some commodity exporter countries. We show results using traditional statistical metrics of forecast accuracy: Mean Squared Prediction Error and Mean Directional Accuracy. We also explore different ways in which we can jointly take advantage of the predictive information contained in all of our commodity-currencies. While LASSO and a model equipped with the first principal component of our currencies perform well, the best combination strategies involve the pre-selection of the two best performing individual currencies: The Chilean Peso and the Icelandic Krona.

Summary of the Paper Entitled: Forecasting Fuel Prices with the Chilean Exchange Rate

This draft is a summary of the paper entitled: Forecasting Fuel Prices with the Chilean Exchange Rate. In that paper we show that the Chilean exchange rate has the ability to predict the returns of oil prices and of three additional oil-related products: gasoline, propane and heating oil. The theoretical underpinnings of our empirical findings rely on the present-value theory for exchange rate determination and on the strong co-movement displayed by some commodity prices. The Chilean economy is heavily influenced by one particular commodity: copper, which represents nearly 50% of total national exports and attracts a similar share in terms of Foreign Direct Investment. As a consequence, the floating Chilean exchange rate is importantly affected by fluctuations in the copper price. As oil-related products display an important co-movement with base metal prices, it is reasonable to expect evidence of Granger causality from the Chilean peso to these oil-related products. We find substantial evidence of predictability both in-sample and out-of-sample. Our paper is part of a growing literature that in the recent years has explored the linkages between commodity prices and commodity currencies.

Do it with a smile: Forecasting volatility with currency options

We show that traditional measures of curvature and symmetry of the “smiles” improve volatility predictions in forex markets. We consider post crisis data at a daily basis for seven currencies vis a vis the American dollar: The British pound, the Euro, the Australian dollar, the Japanese yen, the Brazilian real and the Mexican and Chilean peso. While our results are robust to the option currency and maturity, they are particularly strong for latin-American currencies and options with longer maturity. We find that the simultaneous inclusion of skewness and kurtosis to a forecasting model significantly improves its predictive accuracy.

Empirical implementation of entropy risk factor model: A test on Chilean peso

Currencies are used by many investors as a speculative or investment instrument. Their movements are complex and there are exchange rate models which suggest how to predict long and short-term fluctuations. In this paper we investigate the predictability of an exchange rate with an entropy risk factor model. Considering that recent studies find complex systems characteristics of financial markets, we explore the usefulness of sample entropy as a risk factor for currency fluctuations. The empirical testing of sample entropy is based on the data of the Chilean peso (CLP) exchange rate for the period of January 1, 2005 and November 25, 2016. We find evidence that Chilean peso market has enough market inefficiencies that can be profitably exploited by the sample entropy based prediction algorithm developed in this paper.

Forecasting base metal prices with the Chilean exchange rate

In this paper we show that the Chilean exchange rate has the ability to predict the returns of the London Metal Exchange Index and of the six primary non-ferrous metals that are part of the index: aluminum, copper, lead, nickel, tin and zinc. The economic relationship hinges on the present-value theory for exchange rates, a floating exchange rate regime and the fact that copper represents about a half of Chilean exports and nearly 45% of Foreign Direct Investment. Consequently, the Chilean peso is heavily affected by fluctuations in the copper price. As all six base metal prices show an important comovement, we test whether the relationship between copper prices and Chilean exchange rates also holds true when it comes to the six primary non-ferrous metals. We find interesting evidence of predictability both in-sample and out-of-sample with traditional statistical measures. We also show that the information contained in the Chilean peso can successfully be used to obtain positive returns when trading base metals. Our paper is part of a growing literature that in the recent years has evaluated the ability of commodity currencies to forecast commodity prices.

Commodity-currencies or currency-commodities: Evidence from causality tests

This paper presents a comparative analysis of the return and volatility spillovers across the commodity and currency markets for an expanded set of commodity-exporters and currencies that includes several emerging commodity-exporting nations in addition to the developed exporters that have often been the focus in the literature. Strong causal effects are observed, largely in the direction of commodities from currencies with several cases of bidirectional causality, particularly between gold and the New Zealand dollar, Brent oil and the Brazilian real, and copper and the Chilean peso. The causal effects from currencies to commodities are not only limited to return causality, but exist in the case of volatility as well, implying the presence of significant risk transmissions from currencies. We also show that causal effects from currencies to commodities have become more widespread during the period following the 2007–2008 global financial crisis. Overall, our findings imply that currency market dynamics have informative value for commodity return and volatility with significant implications for volatility forecasting and active management of commodity price fluctuations.

Commodity-Currencies or Currency-Commodities: Evidence from Causality Tests

This paper presents a comparative analysis of the return and volatility spillovers across the commodity and currency markets for an expanded set of commodity-exporters and currencies that includes several emerging commodity-exporting nations in addition to the developed exporters that have often been the focus in the literature. We find strong causal effects, largely in the direction of commodities from currencies with several cases of bidirectional causality observed, particularly between gold and the New Zealand dollar, Brent oil and the Brazilian real, and copper and the Chilean peso. The causal effects from currencies to commodities are not only limited to return causality, but exist in the case of volatility as well, implying the presence of significant risk transmissions from currencies. Finally, we show that causal effects from currencies to commodities have become more widespread during the period following the 2007-2008 global financial crisis. Overall, our findings imply that currency market dynamics have informative value for commodity return and volatility with significant implications for volatility forecasting and active management of commodity investments.

Can We Beat the Random Walk? The Case of Survey-Based Exchange Rate Forecasts in Chile

We examine the accuracy of survey-based expectations of the Chilean exchange rate relative to the US dollar. Our out-of-sample analysis reveals that survey-based forecasts outperform the Driftless Random Walk (DRW) in terms of Mean Squared Prediction Error at several forecasting horizons. This result holds true even when comparing the survey to a more competitive benchmark based on a refined information set. A similar result is found when precision is measured in terms of Directional Accuracy: survey-based forecasts outperform a “pure luck” benchmark at several forecasting horizons. Differing from the traditional “no predictability” result reported in the literature for many exchange rates, our findings suggest that the Chilean peso is indeed predictable.

Exchange rate predictability in emerging markets

This paper uses financial and macroeconomic variables to predict currency returns, by using a two-step procedure. The first step consists of a cointegration equation that explains the exchange rate level as a function of global and domestic financial factors. The second step estimates an error-correction equation, for modeling the expected returns. This approach is a factor model analysis, where a Lasso derived technique is used for variable selection. This paper will focus on the five most frequently traded Latin American currencies, Brazilian Real (BRL), Chilean Peso (CLP), Colombian Peso (COL), Mexican Peso (MXN) and Peruvian Sol (PEN), during the time horizon from December 2001 until February 2016. The first finding is that the Global Exchange Rate Factor offers information about the exchange rate movements. In addition, this paper shows that commodity, equity prices and domestic risk premium are important variables for explaining exchange rates. Moreover, it confirms the existing results for the carry and slope variables.

Foreign exchange exposure in Latin America: evidence for Spanish firms

Propósitoeste trabajo analiza la exposición económica al riesgo cambiario en Latinoamérica por parte del sector empresarial español entre 2010 y 2016. Asimismo, evalúa la efectividad de la cobertura con productos derivados en su reducción.Metodologíala exposición económica es estimada a través del modelo de Jorion (1990), utilizando tanto una cesta de divisas como un análisis individualizado para las principales divisas que sustentan la actividad entre España y Latinoamérica, a saber, Peso mexicano, Real brasileño, Peso argentino, Peso chileno, y Peso colombiano. Respecto al análisis de la cobertura, se estiman modelos dinámicos con datos de panel a través del método generalizado de momentos.Resultadoslos resultados muestran que el número de empresas con exposición económica significativa es sensible a la frecuencia temporal de las observaciones. Asimismo, la evidencia denota que el perfil exportador de las empresas es mayoritario, tanto al considerar una cesta de divisas latinoamericanas como, individualmente, los cinco principales pares de divisas. La única excepción es el peso argentino, donde el perfil importador de las empresas es levemente superior. Asimismo, el peso chileno destaca como la divisa con mayor número de empresas con exposición significativa.Originalidadeste trabajo aporta evidencia inédita sobre la exposición económica al riesgo cambiario en Latinoamérica en un período reciente caracterizado por dos aspectos principales: i) una importante depreciación de algunas divisas latinoamericanas respecto al euro; ii) una potenciación de la actividad empresarial española en esa región para favorecer su crecimiento durante la reciente recesión de la economía española.

Forecasting Base Metal Prices with Commodity Currencies

In this paper we show that the Chilean exchange rate has the ability to predict the returns of the London Metal Exchange Index and of the six primary non-ferrous metals that are part of the index: aluminum, copper, lead, nickel, tin and zinc. The economic relationship hinges on the present-value theory for exchange rates, a floating exchange rate regime and the fact that copper represents about a half of Chilean exports and nearly 45% of Foreign Direct Investment. Consequently, the Chilean peso is heavily affected by fluctuations in the copper price. As all six base metal prices show an important comovement, we test whether the relationship between copper prices and Chilean exchange rates also holds true when it comes to the six primary non-ferrous metals. We find interesting evidence of predictability both in-sample and out-of-sample. Our paper is part of a growing literature that in the recent years has evaluated and called into question the ability of commodity currencies to forecast commodity prices.

The Predictive Relationship Between Exchange Rate Expectations and Base Metal Prices

In this paper we show that survey-based-expectations about the future evolution of the Chilean exchange rate have the ability to predict the returns of the six primary non-ferrous metals: aluminum, copper, lead, nickel, tin and zinc. Predictability is also found for returns of the London Metal Exchange Index. Previous studies have shown that the Chilean exchange rate has the ability to predict copper returns, a world commodity index and base metal prices. Nevertheless, our results indicate that expectations about the Chilean peso have stronger predictive ability relative to the Chilean currency. This is shown both in-sample and out-of-sample. By focusing on expectations of a commodity currency, and not on the currency itself, our paper provides indirect but new and strong evidence of the ability that commodity currencies have to forecast commodity prices. Our results are also consistent with the present-value-model for exchange rate determination.

Designing a tax to discourage unhealthy food and beverage purchases: The case of Chile

The global shift towards diets high in sugar-sweetened beverages (SSBs) and energy dense ultra-processed foods is linked to higher prevalence of obesity, diabetes and most other non-communicable diseases (NCDs), causing significant costs to societies and individuals. Chile has the highest SSB consumption in the world, very high junk food intake and very rapid increases in these poor components of the diet plus obesity prevalence. This study’s purpose is to compare the effect of different tax policies for SSBs and ultra-processed foods on nutrient availability, utilizing price-elasticities, which are estimated from a Quadratic Almost Ideal Demand System model, using the 2011–2012 Income and Expenditure survey from Chile. We take into account the high proportion of households not purchasing various food and beverage groups (censored nature of data) and endogeneity on total expenditures. The food groups considered were: sweets and desserts; salty snacks and chips; meat products and fats; fruits, vegetables and seafood; grain-based staples; ready-to-drink SSB; SSB from concentrate; plain water, coffee and tea; and milk, which together represent 90% of food expenditures. The simulated taxes were: (1) 18% price tax on all foods and beverages exceeding thresholds on sodium, saturated fat, and added sugar and for which marketing is restricted (based on a Chilean law, effective June 16, 2016); (2) 40% tax on SSBs (22% above the current tax level); and (3) a 1 Chilean peso (0.2 US cents) per gram of sugar tax on products with added sugar. Unhealthy beverages and foods are price-elastic (−1.95 for salty snacks and chips, −1.30 for ready-to-drink SSBs, and −1.27 for SSBs from concentrate), meaning that the change in consumption is proportionally larger with respect to a change in price. Results are robust to different model specification, and consistent among different socioeconomic sub-populations. Overall, the tax on foods and beverages high in fat, salt and sugar is associated with the largest reduction in household purchases of sodium, added sugar, saturated fat and calorie purchases. Chile is unique in currently having instituted a small current SSB tax as well as marketing controls and front-of-package labelling of unhealthy foods and beverages. The design of a more comprehensive tax to enhance the overall effect of these policies on healthier diets is a next critical step. This study shows that a tax on the same foods and beverages already delineated as unhealthy by the marketing controls and front-of-pack labelling should promote a healthier diet.

The Chilean peso exchange-rate carry trade and turbulence

In this study we provide evidence regarding the relationship between the Chilean peso carry trade and currency crashes of the peso against other currencies. Using a rich dataset containing information from the local Chilean forward market, we show that speculation aimed at taking advantage of the recently large interest rate differentials between the peso and developedcountry currencies has led to several episodes of abnormal turbulence, as measured by the exchange-rate distribution’s skewness coefficient. In line with the interpretative framework linking turbulence to changes in the forward positions of speculators, we find that turbulence is higher in periods during which measures of global uncertainty have been particularly high.

Covariance Stability Test for Exploring the Impact of Subprime Financial Crisis on the Forex

The sub-prime crisis started from November 2006 to February 2008 is a global crisis that affected almost all economy activities in the world. In this study, we used the covariance stability test for exploring its impact towards foreign exchange rate among 15 currencies. Box’s M control chart and its root causes analysis are employed to understand the behaviour and interrelationship of FOREX’s structure among America and Europe continents. From the analysis, it shows that the structures of covariance from Jan, 2006 to Dec, 2008 are not stable.To be detail, if there is any shift on USD during April-June 2007, the nearest currencies that will received the impact are Argentine Peso, Chilean Peso and Rusia Ruble.