Determinants of the Real Equilibrium Exchange Rate in Peru: Is the Sol a Commodity Currency?

This study evaluates the hypothesis that the sol is a commodity currency and, more generally, identifies the determinants of the equilibrium real exchange rate in Peru through a cointegration analysis. The results show that export commodity prices do not have a statistically significant impact on Peru’s effective real exchange rate, suggesting that the sol is not a commodity currency. The paper provides empirical evidence that large-scale profit repatriation and foreign exchange intervention have effectively insulated Peru’s real exchange rate from the impact of commodity price shocks. It is found that Peru’s equilibrium real exchange rate is driven primarily by productivity and government consumption.