Exchange rate pass-through and inflation targeting in Peru

Diego Winkelried

No 2011-012, Working Papers from Banco Central de Reserva del Perú

Abstract: It has been widely documented that the exchange rate pass-through to domestic inflation has decreased significantly in most of the industralised world. As microeconomic factors cannot completely explain such a widespread phenomenon, a macroeconomic explanation linked to the inflationary environment - that a low and more stable inflation rate leads to a decrease in the pass-through - have gained popularity. Using a structural VAR framework, this paper presents evidence of a similar decline in the pass-through in Peru, a small open economy that gradually reduced inflation to international levels in order to adopt a fully-fledged inflation targeting scheme in 2002. It is argued that the establishment of a credible regime of low inflation has been instrumental in driving the exchange rate pass-through down.

Keywords: Exchange rate pass-through; inflation targeting; structural VAR. (search for similar items in EconPapers)
JEL-codes: C32 E31 E47 F31 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mon and nep-opm
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Citations: View citations in EconPapers (7)

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Journal Article: Exchange rate pass-through and inflation targeting in Peru (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2011-012

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