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Monetary Transmission in Dollarized and Non-Dollarized Economies: The Cases of Chile, New Zealand, Peru and Uruguay

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  • International Monetary Fund

Abstract

The paper conducts a comparative study of the monetary policy transmission in two economies that run a well-established IT regime, Chile and New Zealand, vis-Ã -vis two economies operating under relatively newer IT regimes, and which are exposed to a significant degree of dollarization, Peru and Uruguay. It is shown that the traditional interest rate channel is effective in Chile and New Zealand. For Peru and Uruguay, the exchange rate channel is instead more relevant in the transmission of monetary policy. This latter result follows from the limited impact of the policy rate in curbing inflationary pressures in these two countries, in combination with the fact that they have a relatively large and persistent exchange rate pass through. Finally, it is shown that the on-going de-dollarization process of Peru and Uruguay has somewhat strengthened their monetary transmission through the interest rate channel.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/87.

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Length: 21
Date of creation: 01 Apr 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/87

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Related research

Keywords: Dollarization; Economic models; Exchange rates; Inflation targeting; Interest rates; Monetary transmission mechanism;

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References

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  1. 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, issue 14, pages 11-32.
  2. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
  3. Prachi Mishra & Antonio Spilimbergo & Peter Montiel, 2010. "Monetary transmission in low income countries," Department of Economics Working Papers 2010-16, Department of Economics, Williams College.
  4. Leonardo Leiderman & Rodolfo Maino & Eric Parrado, 2006. "Inflation Targeting in Dollarized Economies," IMF Working Papers 06/157, International Monetary Fund.
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Cited by:
  1. International Monetary Fund, 2011. "The Policy Interest-Rate Pass-Through in Central America," IMF Working Papers 11/240, International Monetary Fund.
  2. Jamilov, Rustam, 2012. "Channels of Monetary Transmission in the CIS," MPRA Paper 39568, University Library of Munich, Germany.

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