Exchange rate pass-through and inflation targeting in Peru

Diego Winkelried

Empirical Economics, 2014, vol. 46, issue 4, 1196 pages

Abstract: It has been widely documented that the exchange rate pass-through to domestic inflation has decreased significantly in most of the industrialized 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—has 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. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Exchange rate pass-through; Inflation targeting; Structural VAR (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (24)

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Working Paper: Exchange rate pass-through and inflation targeting in Peru (2011)
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DOI: 10.1007/s00181-013-0715-4

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