The Behavior of Interest rate Differentials Under Shifting Exchange Rate Regimes: The Experience of Chile, Colombia and Israel.

• Autores: Carlos A. Ibarra
• Localización: Cuadernos de economía: Latin American Journal of Economics, ISSN-e 0717-6821, Nº. 125, 2005, págs. 103-131
• Idioma: inglés
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• Resumen

  • This paper studies the dynamics of the interest rate differential across band and floating exchange rate regimes in Chile, Colombia and Israel, and in a benchmark group composed of Italy, Portugal and Spain. Significant differences in the interest rate-exchange rate link are found between the two groups, irrespective of regime. However, in all countries, except Italy, the interest differential ceased to behave anti-cyclically against output after the adoption of floating, possibly because of a perceived need to gain credibility for the new system in the context of an o­ngoing disinflation process.