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

By Santiago Acosta Ormaechea, David O Coble Fernandez

April 1, 2011

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Santiago Acosta Ormaechea, and David O Coble Fernandez. The Monetary Transmission in Dollarized and Non-Dollarized Economies: The Cases of Chile, New Zealand, Peru and Uruguay, (USA: International Monetary Fund, 2011) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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-à-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.

Subject: Central bank policy rate, Deposit rates, Exchange rates, Inflation, Money markets

Keywords: Peru, Rate, Uruguay, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/087
Stock No:

WPIEA2011087
ISBN:

9781455234097
ISSN:

1018-5941

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