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Inflation Targeting in Dollarized Economies
Author:
Mr. Leonardo Leiderman null

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Mr. Rodolfo Maino
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Mr. Eric Parrado null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 157
Language:
English
Publication Date:
01 Jun 2006
DOI:
https://doi.org/10.5089/9781451864175.001
ISBN:
9781451864175
ISSN:
1018-5941
Pages:
20
Keywords:
WP; exchange rate; inflation targeting; Peru; interest rate
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The shift to inflation targeting has contributed to the relatively low inflation observed in some emerging market economies although, as noted by many economists, the preconditions required for a successful implementation were not in place. The existence of managed exchange rate regimes, a narrow base of domestic nominal financial assets, the lack of market instruments to hedge exchange rate risks, together with fear of floating and dollarization, have been stressed as factors that might weaken the efficacy of monetary policy. By examining various aspects of monetary transmission and policy formulation in two highly dollarized economies (Peru and Bolivia) vis-à-vis two economies with low levels of dollarization (Chile and Colombia), we found that, while dollarization imposes differences in both the transmission capacity of monetary policy and its impact on real and financial sectors, it does not preclude the use of inflation targeting as a policy regime.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund