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.
7  But, when this architecture is put in place and preserved over time, the floating ER regime may be just the expression of a broader arrangement of institutions and policies. Perhaps it is such arrangement, rather than the ER policy itself, the factor that may really protect EMEs from major global shocks, but this is not material to the end result: substantial smoothing of external volatility over the local economy. Finally, a greater convergence to the international standards on banking capital requirements defined by Basel III, especially for global banks, is among the macroprudential policies currently promoted to reduce the impacts of greater external volatility. Thank you. ***  8