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Item type:Publication, Evolution of the exchange rate pass-through into prices in Peru: An empirical application using TVP-VAR-SV models(Elsevier Ltd, 2024-04-01)This study examines the evolution of exchange rate pass-through (ERPT) into import, producer, and consumer prices in Peru from 1995Q2 to 2022Q4 using time-varying parameter and stochastic volatility VAR models. Findings reveal a resurgence of ERPTs into import and producer prices since 2009, particularly during the period of a strong US dollar following the 2013 taper tantrum and from 2020 to 2022. Increased uncertainty surrounding the exchange rate and future macroeconomic policies, triggered by the political uncertainty following the 2021 general elections, may have contributed to this trend. Short-term ERPT exceeds long-term ERPT, which might reflect prevalent price dollarization in Peru's import and producer prices. Consumer ERPT remained stable at around 10% until 2009, then increased to 15%, indicating lower levels of price dollarization. This paper sheds light on ERPT dynamics in Peru, carrying implications for policymakers in emerging economies. - Some of the metrics are blocked by yourconsent settings
Item type:Publication, Effects of External Shocks on Macroeconomic Fluctuations in Pacific Alliance Countries(Elsevier B.V., 2023-07-01)Given Pacific Alliance (PA) countries’ dependence on the external sector amidst volatile global financial conditions and increased trade openness, it is important to understand the time-varying impact of external shocks on these economies to assess their resilience. We use data for 1994Q1-2019Q4 and VAR models with time-varying parameters and stochastic volatility to study the heterogeneity of responses to financial, real, and nominal external shocks. The results suggest that external shocks have played a significant role in domestic cycles (50% on average), but their impact became temporarily larger during the global low-interest-rate period; i.e., the impact of export price and Fed rate shocks on GDP increased the most, peaking in 2002–2011, whereas the effect of shocks originating in China, although the largest, remained stable. In addition, a more predictable and countercyclical monetary policy in response to commodity price shocks diminished the transmission of external shocks, thereby increasing PA economies’ external resilience. - Some of the metrics are blocked by yourconsent settings
Item type:Publication, Does the Central Bank of Peru Respond to Exchange Rate Movements? A Bayesian Estimation of a New Keynesian DSGE Model with FX Interventions(Elsevier Inc., 2023-09-01)This paper assesses the role played by the exchange rate and FX intervention in setting monetary policy interest rates in Peru. We estimate a Taylor rule that includes inflation, output gap and the exchange rate using a New Keynesian DSGE model that follows closely Schmitt-Grohé and Uribe (2017). The model is extended to include an explicit sterilized FX intervention rule as in Faltermeier, Lama, and Medina (2017). The main empirical results show that the model that features a Taylor rule which does not respond to changes in the nominal exchange rate and considers an active use of FX interventions by the Central Bank of Peru clearly outperforms other model specifications in terms of the marginal log density. We also find that the coefficient associated with the response of the Taylor rule to inflation is close to 2 and the one associated with the output gap is greater than 1. Additionally, we find that FX interventions have become more responsive to exchange rate fluctuations during the IT period. Finally, the estimated IRFs show that FX interventions has contributed to reducing the volatility of GDP in response to productivity and terms of trade shocks in Peru.