  This study examines the factors influencing the short-term real effective
exchange rate (REER) in Uruguay by applying an extended Mundell-Fleming model.
Analyzing the impact of the US lending rate (USLR), money supply (M2),
inflation (CPI), and the world interest rate (WIR), the paper uses a linear
regression model with Newey-West standard errors. Key findings reveal that an
increase in the USLR, CPI, and M2 is associated with a depreciation of the
REER. In contrast, WIR shows no significant impact. These findings are
consistent with the theoretical expectations of the Mundell-Fleming model
regarding open economies under floating exchange rates. Therefore, authorities
should tighten monetary policy, control inflation, adjust fiscal strategies,
and boost exports in response to Peso depreciation.
