FX depreciation (bp)  Figure 1: ER and long-term yields in reaction to US MP shocks (CHL vs MEX) (†) Chile Mexico 400  400  300  300  200  200  100  100  0  0  -100  -100  -200  -200  -300  10-Year interest rate (bp)  -400 -20 -15 -10 -5  -300 y = 5.4 + 6.1x -400 0 5 10 15 20 -20 -15 -10 -5  20  20  15  15  10  10  5  5  0  0  -5  -5  -10  -10  -15 -20 -20 -15 -10 -5  y = 16 + 1.19x 0 5 10 15 20  -15 y = -0.5 + 0.15x 0 5 10 15 20  -20 -20 -15 -10 -5  y = -1.9 + 1.1x 0 5 10 15 20  US monetary policy shock (bp)  (†) A rise in FX indicates a depreciation of the domestic currency against the dollar. The sample corresponds to the post Nov-08 average. Source: Central Bank of Chile. Recent research conducted at the Central Bank of Chile highlights this point. Figure 1 shows the impact of US MP shocks (changes in US short-term rates around Federal Reserve meetings) on ER and long-term bond prices in Chile (with clean floating) and Mexico, which has actively intervened in recent years.
While the IMF used to be the guardian of the system of fixed exchange rates established in Bretton Woods in 1944, it now works to promote international financial stability. In this role, it oversees the overall economic and financial position of its member countries. More than ever before, its activities are primarily aimed at crisis prevention. BIS Review 111/2006  1