Conditional exchange rate pass-through and monetary policy credibility: Insights from Uruguay and Chile

María Fernanda Cuitiño, Juan Pablo Medina, Laura Zacheo

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

The exchange rate pass-through (ERPT) to local prices is critical for determining inflation dynamics and monetary policy. Different factors have been considered to explain the variation of the ERPT across time and countries. This paper aims to disentangle the role of shocks and monetary policy credibility on the ERPT, estimating medium-scale New Keynesian models for Uruguay and Chile that explicitly incorporate the possibility of imperfect credibility. The estimations show a significant degree of imperfect credibility in Uruguay and an important role for exchange rate stabilization in the monetary policy rule. Both aspects are interlinked and should be tackled together by the monetary authority in Uruguay. The estimated ERPT tends to be lower when the shock has an offsetting effect in aggregate demand and when monetary policy is more credible. Estimations for Chile stress that this country has well anchored inflation expectations and a very small degree of exchange rate stabilization.

Original languageEnglish
Article number105926
JournalEconomic Modelling
Volume114
DOIs
StatePublished - Sep 2022
Externally publishedYes

Keywords

  • Bayesian estimation
  • Emerging economy
  • Exchange rate pass-through
  • Imperfect credibility

Fingerprint

Dive into the research topics of 'Conditional exchange rate pass-through and monetary policy credibility: Insights from Uruguay and Chile'. Together they form a unique fingerprint.

Cite this