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The monetary policy transmission mechanism under financial dollarisation: the case of Peru 1996-2006

In: Transmission mechanisms for monetary policy in emerging market economies

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Author Info

  • Renzo Rossini

    (Central Bank of Peru)

  • Marco Vega

    (Central Bank of Peru)

Abstract

This paper analyzes the changes in the monetary policy transmission mechanism in Peru. A strong conclusion that emerges from this research is that both, the direct interest rate channel and the expectations channel have become more important in the recent years, especially after the Inflation Targeting adoption. The research further explores the implications of financial dollarization for the practice of monetary policy by performing two exercises. First, it compares different degrees of exchange rate flexibility and finds out that the more flexible the exchange rate is, the quicker but weaker the exchange rate pass-through becomes. Second, since financial dollarization may trigger contractionary depreciations, the document studies implications for monetary policy. The conclusion is that the effectiveness of monetary policy can be further improved if the economy becomes less dollarized.

(This abstract was borrowed from another version of this item.)

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This chapter was published in:

  • Bank for International Settlements, 2008. "Transmission mechanisms for monetary policy in emerging market economies," BIS Papers, Bank for International Settlements, number 35, May.
    This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 35-18.

    Handle: RePEc:bis:bisbpc:35-18

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," NBER Working Papers 12163, National Bureau of Economic Research, Inc.
    2. Lahura, Erick, 2006. "El efecto traspaso de la tasa de interés y la política monetaria en el Perú: 1995-2004," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 13.
    3. Jeffrey A. Frankel & David C. Parsley & Shang-Jin Wei, 2005. "Slow Passthrough Around the World: A New Import for Developing Countries?," NBER Working Papers 11199, National Bureau of Economic Research, Inc.
    4. Marco Vega & Diego Winkelried, 2004. "How Does Global Disinflation Drag Inflation in Small Open Economies?," Macroeconomics 0403008, EconWPA.
    5. Leonardo Leiderman & Rodolfo Maino & Eric Parrado, 2006. "Inflation Targeting in Dollarized Economies," IMF Working Papers 06/157, International Monetary Fund.
    6. Woodford, Michael, 1999. "Optimal Monetary Policy Inertia," Manchester School, University of Manchester, vol. 67(0), pages 1-35, Supplemen.
    7. Amato, Jeffery D. & Gerlach, Stefan, 2002. "Inflation targeting in emerging market and transition economies: Lessons after a decade," European Economic Review, Elsevier, vol. 46(4-5), pages 781-790, May.
    8. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
    9. Moron, Eduardo & Winkelried, Diego, 2005. "Monetary policy rules for financially vulnerable economies," Journal of Development Economics, Elsevier, vol. 76(1), pages 23-51, February.
    10. Paul Castillo & Carlos Montoro & Vicente Tuesta, 2006. "An Estimated Stochastic General Equilibrium Model with Partial Dollarization: A Bayesian Approach," Working Papers Central Bank of Chile 381, Central Bank of Chile.
    11. Zenon Quispe Misaico, 2001. "Transmission mechanisms of monetary policy in an economy with partial dollarisation: the case of Peru," BIS Papers chapters, in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 210-231 Bank for International Settlements.
    12. Winkelried Quezada, Diego, 2004. "Tendencias comunes y análisis de la política monetaria en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 11.
    13. Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," Research Department Publications 4423, Inter-American Development Bank, Research Department.
    14. Bofinger, Peter & Wollmershäuser, Timo, 2003. "Managed floating as a monetary policy strategy," Munich Reprints in Economics 20206, University of Munich, Department of Economics.
    15. Bringas, Paul & Tuesta, Vicente, 1997. "El superávit de encaje y los mecanismos de Transmisión de la política monetaria: una aproximación," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 1, pages 33-50.
    16. Quispe Misaico, Zenón, 2000. "Política monetaria en una economía con dolarización parcial: el caso del Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 6.
    17. Luis Carranza & Juan M. Cayo & José E. Galdón-Sánchez, 2003. "Exchange Rate Volatility and Economic Performance in Peru: A Firm Level Analysis," Faculty Working Papers 12/03, School of Economics and Business Administration, University of Navarra.
    18. Winkelried, Diego, 2003. "¿Es asimétrico el pass-through en el Perú?: Un análisis agregado," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 10.
    19. León Fernández, David, 1999. "La información contenida en los agregados monetarios en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 5.
    20. Adolfo Barajas & Roberto Steiner, 2002. "Credit Stagnation in Latin America," IMF Working Papers 02/53, International Monetary Fund.
    21. Rossini Miñán, Renzo, 2001. "Aspectos de la adopción de un régimen de metas de inflación en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 7.
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    Cited by:
    1. Dubravko Mihaljek & Marc Klau, 2008. "Exchange rate pass-through in emerging market economies: what has changed and why?," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 103-130 Bank for International Settlements.
    2. Winkelried, Diego, 2012. "Traspaso del tipo de cambio y metas de inflación en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 23, pages 9-24.
    3. M S Mohanty & Philip Turner, 2008. "Monetary policy transmission in emerging market economies: what is new?," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 1-59 Bank for International Settlements.

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