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Targeting Inflation in a Dollarized Economy: The Peruvian Experience

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  • Adrián Armas
  • Francisco Grippa

Abstract

This discusses the unique experience of Peru's Central Bank with inflation targeting in an economy characterized by a high degree of financial dollarization. The paper outlines how Peru has taken financial dollarization into consideration in the design of monetary policy, then deals with monetary policy implementation and the Central Bank's strategy for controlling financial dollarization risks. The paper concludes with analysis and lessons drawn from the Peruvian case.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 6827.

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Date of creation: Sep 2005
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Handle: RePEc:idb:brikps:6827

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Keywords: Economics; WP-538;

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References

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  1. Javier Gómez & Juan Manuel Julio, . "Transmission Mechanisms and Inflation Targeting: The Case of Colombia Disinflation," Borradores de Economia, Banco de la Republica de Colombia 168, Banco de la Republica de Colombia.
  2. Carranza, Luis J. & Cayo, Juan M. & Galdon-Sanchez, Jose E., 2003. "Exchange rate volatility and economic performance in Peru: a firm level analysis," Emerging Markets Review, Elsevier, Elsevier, vol. 4(4), pages 472-496, December.
  3. Gulbin Sahinbeyoglu, 2001. "Monetary Transmission Mechanism : A View From A High Inflationary Environment," Discussion Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0101, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. Armas, Adrián & Grippa, Francisco & Quispe, Zenón & Valdivia, Luis, 2001. "De metas monetarias a metas de inflación en una economía con dolarización parcial: El caso peruano," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 7.
  5. Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2009. "Exchange rate and inflation dynamics in dollarized economies," Journal of Development Economics, Elsevier, Elsevier, vol. 89(1), pages 98-108, May.
  6. Luque, Javier & Vega, Marco, 2003. "Usando un modelo semi-estructural de pequeña escala para hacer proyecciones: Algunas consideraciones," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 10.
  7. Eduardo Levy Yeyati & Alain Ize, 1998. "Dollarization of Financial Intermediation," IMF Working Papers, International Monetary Fund 98/28, International Monetary Fund.
  8. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 594, China Economics and Management Academy, Central University of Finance and Economics.
  9. Paulo Springer de Freitas & Marcelo Kfoury Muinhos, 2001. "A Simple Model for Inflation Targeting in Brazil," Working Papers Series, Central Bank of Brazil, Research Department 18, Central Bank of Brazil, Research Department.
  10. Gonzalo Llosa/Shirley Miller, 2004. "Using additional information in estimating output gap in Peru: a multivariate unobserved component approach," Econometric Society 2004 Latin American Meetings, Econometric Society 243, Econometric Society.
  11. Carlos Montoro & Paul Castillo & Vicente Tuesta, 2006. "From Money Aggregates to Interest Rate Rules in a Small Open Economy: A Second Order Approach," Computing in Economics and Finance 2006, Society for Computational Economics 17, Society for Computational Economics.
  12. Tomasz Lyziak, 2002. "Monetary transmission mechanism in Poland.The strenght and delays," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 26, National Bank of Poland, Economic Institute.
  13. Adam Bennett & Eduardo Borensztein & Tomás J. T. Baliño, 1999. "Monetary Policy in Dollarized Economies," IMF Occasional Papers, International Monetary Fund 171, International Monetary Fund.
  14. Vega, Marco, 2003. "Reportando la distribución de la proyección de inflación," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 10.
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Citations

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Cited by:
  1. Lahura, Erick, 2010. "The Effects Of Monetary Policy Shocks In Peru: Semi-Structural Identification Using A Factor-Augmented Vector Autoregressive Model," Working Papers, Banco Central de Reserva del Perú 2010-008, Banco Central de Reserva del Perú.
  2. Adrián Armas & Paul Castillo & Marco Vega, 2014. "Inflation Targeting and Quantitative Tightening: Effects of Reserve Requirements in Peru," IDB Publications, Inter-American Development Bank 84714, Inter-American Development Bank.
  3. Roberto Chang, 2008. "Inflation Targeting, Reserves Accumulation, and Exchange Rate Management in Latin America," BORRADORES DE ECONOMIA, BANCO DE LA REPÚBLICA 004518, BANCO DE LA REPÚBLICA.
  4. Petreski, Marjan, 2013. "Inflation targeting at the crossroads: Evidence from post-communist economies during the crisis," MPRA Paper, University Library of Munich, Germany 47018, University Library of Munich, Germany.
  5. Erick Lahura & Marco Vega, 2013. "Asymmetric effects of FOREX intervention using intraday data: evidence from Peru," BIS Working Papers, Bank for International Settlements 430, Bank for International Settlements.
  6. Yannick Lucotte, 2010. "Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation," Post-Print, HAL halshs-00505140, HAL.
  7. Roberto Frankel & Martín Rapetti, 2010. "A Concise History of Exchange Rate Regimes in Latin America," CEPR Reports and Issue Briefs, Center for Economic and Policy Research (CEPR) 2010-11, Center for Economic and Policy Research (CEPR).
  8. Renzo Rossini & Marco Vega, 2007. "The monetary policy transmission mechanism under financial dollarization: the case of Peru 1996-2006," Working Papers, Banco Central de Reserva del Perú 2007-017, Banco Central de Reserva del Perú.
  9. Rossini, Renzo & Vega, Marco, 2007. "El mecanismo de transmisión de la política monetaria en un entorno de dolarización financiera: El caso del Perú entre 1996 y 2006," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 14, pages 11-32.
  10. International Monetary Fund, 2010. "The Transmission Mechanism in Armenia," IMF Working Papers, International Monetary Fund 10/270, International Monetary Fund.
  11. Paul Castillo & Alberto Humala & Vicente Tuesta, 2007. "Monetary Policy, Regime Shifts, and Inflation Uncertainty in Peru (1949-2006)," Working Papers, Banco Central de Reserva del Perú 2007-005, Banco Central de Reserva del Perú.
  12. Batini, Nicoletta & Levine, Paul & Pearlman, Joseph, 2009. "Estabilización óptima del tipo de cambio en una economía dolarizada con meta inflacionaria," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 16, pages 37-82.
  13. Winkelried, Diego, 2013. "Modelo de Proyección Trimestral del BCRP: Actualización y novedades," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 26, pages 9-60.
  14. Eduardo Levy Yeyati, 2006. "Exchange Rate Regimes in the 2000s: A Latin American Perspective," Business School Working Papers, Universidad Torcuato Di Tella exchangerate, Universidad Torcuato Di Tella.
  15. Saki Bigio & Marco Vega, 2006. "Monetary Policy under Balance Sheet Uncertainty," Computing in Economics and Finance 2006, Society for Computational Economics 157, Society for Computational Economics.
  16. Salas, Jorge, 2011. "Estimación bayesiana de unmodelo de pequeña economía abierta con dolarización parcial," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 22, pages 41-62.

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