The Dollar, Wine, Lego, and Other Stories of Macroeconomic Adjustment

Abstract

Is a strong dollar good for the Chilean economy? The answer depends on several factors. First, under a flexible exchange rate regime such as the one adopted by the Central Bank of Chile, exchange rate fluctuations are a form of macroeconomic adjustment for the economy. Indeed, when the economy goes through hard times, that is, low growth, a rise in the exchange rate, or depreciation of the peso, helps stimulate exports, and with that the economy begins to move toward recovery. Continue reading...