Stochastic simulation of the exchange rate of latin american currencies about the US dollar

Abstract

The objective of this paper is to examine the possibilities of simulation of the exchange rate variations of some Latin American currencies against the US dollar; It is performed through two models: the geometric Brownian geometric movement (GMB) and the Ornstein-Uhlenbeck process (OU). Although the properties of these processes are essential in the simulation results, it is also necessary to take into account some hypotheses of economic theory, including the smaller the development of financial markets, the  mayor  will  be  the  intervention  of  the central bank in the Exchange market; And that exchange rate control is used as an additional instrument of monetary policy in addition to the traditional objective of the interest rate. The research especially examines monetary policy and the dynamics of the exchange rate in the following cases: Argentine peso / dollar USD; Mexican Peso / US Dollar USD; Brazilian real/ dollar USD and Chilean peso / dollar USD; In each of them, the feasibility of simulating its dynamics through stochastic processes is analyzed.