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NDF and Exchange Rate Volatility

Stephany Griffith-Jones, Catalina Estefó, Max Gondonneau, and Jorge Arenas

March 2026 · Submitted

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Abstract

This paper quantifies the impact of non-resident Non-Deliverable Forward (NDF) flows on the Chilean peso using daily administrative data. Exploiting the structural break caused by the 2020–2021 pension fund withdrawals, we document a critical regime shift. We find that the retrenchment of local institutional investors eroded market depth, leading to a heightened, nonlinear sensitivity to short-term speculative flows. Post-withdrawal, these offshore positions significantly amplify depreciation and volatility. Our findings underscore the financial stability risks arising when domestic liquidity buffers are compromised, presenting key challenges for monetary policy and regulatory design.

Daily net NDF positions, 2015–2025: pension funds in blue, non-residents in red, and their net imbalance in grey. Values in USD billions. The solid vertical line marks the November 2017 reform; dashed lines mark the three pension withdrawals.
Figure 5. Net NDF positions of pension funds and non-residents. Their mirror pattern weakens around the pension withdrawals. Vertical lines mark the 2017 reform and withdrawals; source: Central Bank of Chile.