Exchange rate and inflation dynamics in dollarized economiesLuis Carranza,
Jose Enrique Galdon-Sanchez () and
Gomez-Biscarri, Javier
Journal of Development Economics, 2009, vol. 89, issue 1, pages 98-108 Abstract: We use a panel of a hundred-plus countries with differing degrees of dollarization to perform an empirical analysis of the effects on inflation of exchange rate depreciations. The results qualify the common view that countries with higher dollarization exhibit higher inflation pass-through. We show that large depreciations tend to generate a negative impact on the pass-through coefficient, this impact being more intense the higher the level of dollarization of the economy. We interpret this as evidence that, in highly dollarized economies, the classic inflationary effects of a real depreciation--higher internal demand and imported inflation--can be offset or diminished by both the larger financial costs and the balance-sheet effect, especially if the depreciation is "large". Additionally, the exchange rate regime is shown to matter: countries with fixed exchange rates suffer more noticeably the balance-sheet effects of large depreciations. Keywords: Inflation; pass-through; Dollarization; Balance-sheet; effect; Developing; economies (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:eee:deveco:v:89:y:2009:i:1:p:98-108 Access Statistics for this article Journal of Development Economics is edited by M. R. Rosenzweig More articles in Journal of Development Economics from Elsevier |
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