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Exchange rate pass-through and inflation targets in Chile

Listed author(s):
  • Mujica, Patricio
  • Saens, Rodrigo

Using quarterly data on the Chilean economy from 1986 to 2009, this article looks at the effect of gradual implementation of an inflation-targeting regime on exchange rate pass-through to prices. Initially, the introduction of inflation-targeting contributes to substantial reductions in the pass-through coefficient. However, in the second phase of implementation, once the monetary authority extends the policy horizon and introduces greater flexibility into the exchange rate system, the pass-through coefficient rises sharply. The findings of this study show that exchange rate pass-through to prices, in addition to being sensitive to the inflationary environment, is closely tied to the rules of the game that shape the monetary policy framework.

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File URL: http://repositorio.cepal.org/handle/11362/40068
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Article provided by Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL) in its journal Revista CEPAL.

Volume (Year): (2015)
Issue (Month): (December)
Pages:

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Handle: RePEc:ecr:col070:40068
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  2. Felipe Morandé & Matías Tapia, 2002. "Exchange Rate Policy in Chile: From the Band to Floating and Beyond," Working Papers wp192, University of Chile, Department of Economics.
  3. Bacchetta, Philippe & van Wincoop, Eric, 2005. "A theory of the currency denomination of international trade," Journal of International Economics, Elsevier, vol. 67(2), pages 295-319, December.
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  5. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series,in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372 Central Bank of Chile.
  6. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
  7. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  8. Frederic S. Mishkin, 2008. "Exchange Rate Pass-Through And Monetary Policy," NBER Working Papers 13889, National Bureau of Economic Research, Inc.
  9. Devereux, Michael B. & Engel, Charles & Storgaard, Peter E., 2004. "Endogenous exchange rate pass-through when nominal prices are set in advance," Journal of International Economics, Elsevier, vol. 63(2), pages 263-291, July.
  10. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
  11. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
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  15. 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.
  16. Vogelsang, Timothy J & Perron, Pierre, 1998. "Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 1073-1100, November.
  17. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
  18. Carlos Noton Norambuena, 2003. "The pass-through from depreciation to inflation: Chile 1986-2001," Estudios de Economia, University of Chile, Department of Economics, vol. 30(1 Year 20), pages 133-155, June.
  19. Miguel Fuentes, 2007. "Pass-Through to Import Prices: Evidence from Developing Countries," Documentos de Trabajo 320, Instituto de Economia. Pontificia Universidad Católica de Chile..
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