Application of the purchasing power parity hypothesis in the forecast of the exchange rate of the Colombian peso against the US dollar
DOI:
https://doi.org/10.46661/revmetodoscuanteconempresa.4476Keywords:
forecast, Colombian peso, WTI Oil, VEC Models, parityAbstract
This paper shows the forecast of the exchange rate between the Colombian peso and the US dollar (hereinafter the dollar) from December 2019 to December 2020, based on a VEC (Vector error correction) model based on the parity hypothesis of weak purchasing power. With this, it´s proposed that the exchange rate is adjusted not only to balance the differences in rates between the United States and Colombia, but also to balance a third variable, in this case WTI crude oil price. Caused by that the main source of export earnings for Colombia has its source in oil resources, it was considered valuable to use WTI quotes as a proxy to estimate the likely direction of the exchange rate in the short and medium term.
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