Exchange rate pass-through and inflation targeting in Peru
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...
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Veröffentlicht in: | Empirical economics 2014-06, Vol.46 (4), p.1181-1196 |
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Format: | Artikel |
Sprache: | eng |
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Zusammenfassung: | 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. |
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ISSN: | 0377-7332 1435-8921 |
DOI: | 10.1007/s00181-013-0715-4 |