This paper establishes a cointegration relationship for the nominal exchange rate in
Costa Rica. The reporting requirements for the central bank allow me to calculate a
daily measure of its dollar shortfall from trading with nonbank public companies. This
and the the country’s differential Emerging Market Bond Index (EMBI) are cointegrated
with Costa Rica’s exchange rate. Out-of-sample tests show that forecasts based on these
cointegration relationships significantly outperform a random walk benchmark.