Fundamentals and Misalignments: The Real Equilibrium Exchange Rate in Peru

This study examines the path of the equilibrium real exchange rate in Peru during the period from 1968 to 1996, focusing on the sources of exchange rate trends and the economic fundamentals that influence its determination. Through a cointegration analysis, it is established that the real exchange rate is linked to fundamental variables such as productivity, terms of trade, the fiscal balance, net foreign assets, and tariffs. The Johansen methodology is applied to examine the long-run relationship between the real exchange rate and its fundamentals, finding evidence of three cointegration vectors. The results indicate that the observed real exchange rate exhibits a trend toward appreciation during the analyzed period, particularly following the implementation of structural reforms and stabilization policies. The implications of this study suggest that economic policy decisions should take into account the adjustment of the exchange rate to its equilibrium level, which is crucial for fiscal planning and exchange rate regulation in the context of the Peruvian economy. (Abstract and audio: Department of Economic Publications)