IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Non-Linear Effects of Monetary Policy and Real Exchange Rate Shocks in Partially Dollarized Economies: An Empirical Study for Peru

  • Saki Bigio

    ()

    (New York University and Central Bank of Peru)

  • Jorge Salas

    ()

    (Central Bank of Peru)

We study whether monetary policy and real exchange rate shocks have non-linear effects on output and inflation in a partially dollarized economy such as Peru. For this purpose, we use a Smooth Transition Vector Autoregression methodology and then report impulse-response functions for shocks of different sign and size, and conditional to the initial position in the business cycle. We find evidence of non-linearities which imply a convex aggregate supply curve: in particular, monetary policy is more likely to affect the output during recessions than in booms, while the opposite is found for the inflation. Regarding real exchange rate shocks, we show that depreciations have greater negative effects during economic downturns and a higher pass-through rate in the positive side of the business cycle.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2006/Documento-Trabajo-08-2006.pdf
File Function: Application/pdf
Download Restriction: no

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2006-008.

as
in new window

Length:
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:rbp:wpaper:2006-008
Contact details of provider: Postal:
Jr. Miro Quesada 441, Lima

Phone: 427-6250 ext. 3841
Fax: 426-6125
Web page: http://www.bcrp.gob.pe

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Eric Parrado, 2001. "Effects of Foreign and Domestic Monetary Policy in a Small Open Economy: the Case of Chile," Working Papers Central Bank of Chile 108, Central Bank of Chile.
  2. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  3. Holmes, Mark J. & Wang, Ping, 2002. "Do monetary Shocks Exert Nonlinear Real Effects on UK Industrial Production?," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 55(3), pages 351-364.
  4. Eduardo Morón & Diego Winkelried, 2003. "Monetary Policy Rules for Financially Vulnerable Economies," IMF Working Papers 03/39, International Monetary Fund.
  5. repec:rus:hseeco:123906 is not listed on IDEAS
  6. 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.
  7. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-50, May.
  8. 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.
  9. Amartya Lahiri & Carlos A. Végh, 2002. "Living with the Fear of Floating: An Optimal Policy Perspective," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 663-704 National Bureau of Economic Research, Inc.
  10. Weise, Charles L, 1999. "The Asymmetric Effects of Monetary Policy: A Nonlinear Vector Autoregression Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 85-108, February.
  11. Ball, L. & Mankiw, N.G., 1992. "Asymmetric Price Adjustment and Economic Fluctuations," Harvard Institute of Economic Research Working Papers 1602, Harvard - Institute of Economic Research.
  12. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  13. Renzo Rossini Miñán, 2002. "Aspectos de la adopción de un esquema de metas explícitas de inflación en el Perú," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 5(1), pages 47-67, June.
  14. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
  15. repec:rus:hseeco:124089 is not listed on IDEAS
  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. J. Bradford DeLong & Lawrence H. Summers, 1988. "How Does Macroeconomic Policy Affect Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 433-494.
  18. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  19. Morten Ravn & Martin Sola, 1996. "A Reconsideration of the Empirical Evidence on the Asymmetric Effects of Money-supply shocks: Positive vs. Negative or Big vs. Small," Archive Discussion Papers 9606, Birkbeck, Department of Economics, Mathematics & Statistics.
  20. Luis Carranza & José E. Galdón-Sánchez & Javier Gómez Biscarri, 2004. "Exchange Rate and Inflation Dynamics in Dollarized Economies," Faculty Working Papers 10/04, School of Economics and Business Administration, University of Navarra.
  21. repec:fth:harver:1418 is not listed on IDEAS
  22. J. Bradford De Long & Lawrence H. Summers, . "How Does Macroeconomic Policy Matter?," J. Bradford De Long's Working Papers _130, University of California at Berkeley, Economics Department.
  23. James Peery Cover, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1261-1282.
  24. Thoma, Mark A., 1994. "Subsample instability and asymmetries in money-income causality," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 279-306.
  25. Adam Bennett & Eduardo Borensztein & Tomás J. T. Baliño, 1999. "Monetary Policy in Dollarized Economies," IMF Occasional Papers 171, International Monetary Fund.
  26. Donald P. Morgan, 1993. "Asymmetric effects of monetary policy," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 21-33.
  27. Karras, Georgios, 1996. "Why are the effects of money-supply shocks asymmetric? Convex aggregate supply or "pushing on a string"?," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 605-619.
  28. 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, vol. 4(4), pages 472-496, December.
  29. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
  30. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Price Rigidities, Asymmetries, and Output Fluctuations," NBER Working Papers 4091, National Bureau of Economic Research, Inc.
  31. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:rbp:wpaper:2006-008. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Research Unit)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.