José J. Cao‐AlviraJosé Eduardo Gómez-GonzálezJulian Vallejo-Peña2026-03-222026-03-22202410.1080/13504851.2024.2335372https://doi.org/10.1080/13504851.2024.2335372https://andeanlibrary.org/handle/123456789/74952This paper examines the impact of real exchange rate shocks on policy interest rates in the five major inflation-targeting economies in LATAM. Using a SVAR model with identification based on sign and short-run restrictions, we find that monetary policy reacts to real exchange rate shocks across all five countries. Specifically, interest rates rise directly in response to a positive real exchange rate shock (appreciation). A subsequent reversal occurs after a few quarters, with statistical significance observed in three countries. Additionally, shocks to the policy rate are demonstrated to effectively induce a real depreciation of the exchange rate. © 2024 Informa UK Limited, trading as Taylor & Francis Group.enEconomicsExchange rateInflation targetingCentral bankLatin AmericansMonetary economicsInflation (cosmology)Monetary policyMacroeconomicsarticle