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Non-Fundamental Flows and Foreign Exchange Rates / Felipe E. Aldunate, Zhi Da, Borja Larrain, Clemens Sialm.
- Format:
- Book
- Author/Creator:
- Aldunate, Felipe E.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w30753.
- NBER working paper series no. w30753
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2022.
- Summary:
- Frequent, yet uninformed, fund flows in Chilean pension plans generate substantial trading in currency markets due to the high allocation to international securities. These non-fundamental flows have a significant impact on the Chilean peso, which is estimated to have a relatively low price elasticity of 0.81. Hedging by the banking sector propagates the price pressure to currency forward markets and results in violations of the covered interest rate parity. Using trading data and bank balance sheet data, we confirm that regulatory requirements and banks' risk bearing constraints create limits of arbitrage.
- Notes:
- Print version record
- December 2022.
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