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Exchange rate pass-through and inflation targeting in Peru

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  • Winkelried, Diego

    () (Central Reserve Bank of Peru.)

Abstract

It has been widely documented that the exchange rate pass-through to domestic inflation has decreased significantly in most of the industralised world. As microeconomic factors cannot completely explain such a widespread phenomenon, a macroeconomic explanation linked to the inflationary environment - that a low and more stable inflation rate leads to a decrease in the pass-through - have gained popularity. Using a structural VAR framework, this paper presents evidence of a similar decline in the pass-through in Peru, a small open economy that gradually reduced inflation to international levels in order to adopt a fully-fledged inflation targeting scheme in 2002. It is argued that the establishment of a credible regime of low inflation has been instrumental in driving the exchange rate pass-through down.

Suggested Citation

  • Winkelried, Diego, 2011. "Exchange rate pass-through and inflation targeting in Peru," Working Papers 2011-012, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2011-012
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    File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2011/Documento-de-Trabajo-12-2011.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ramos, María Gracia & Winkelried, Diego, 2016. "Tendencias comunes en el índice de precios al consumidor," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 31, pages 29-44.
    2. Miguel Ángel Saldarriaga & Diego Winkelried, 2013. "Trade linkages and growth in Latin America: An SVAR analysis," International Economics, CEPII research center, issue 135-136, pages 13-28.
    3. Winkelried, Diego & Saldarriaga, Miguel, 2013. "Socios comerciales y crecimiento en América Latina: Un enfoque SVAR dinámico," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 25, pages 81-102.
    4. Yanamandra, Venkataramana, 2015. "Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 57-68.
    5. Winkelried, Diego, 2013. "Modelo de Proyección Trimestral del BCRP: Actualización y novedades," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 26, pages 9-60.
    6. Fernando J. Pérez Forero & Marco Vega, 2016. "Asymmetric Exchange Rate Pass-through: Evidence from Nonlinear SVARs," Working Papers 2016-63, Peruvian Economic Association.
    7. 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.
    8. repec:ris:betajl:0015 is not listed on IDEAS
    9. repec:rbp:esteco:ree-33-02 is not listed on IDEAS

    More about this item

    Keywords

    Exchange rate pass-through; inflation targeting; structural VAR.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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