Inflation Expectations and Dollarization in Peru

The challenges imposed to monetary policy by the exchange rate pass-through to domestic prices are important in the presence of dollarization. Moreover, the challenges are magnified when real transactions are dollarized and threaten to contaminate the formation of inflation expectations introducing nonlinearities and asymmetries in the relationship between exchange rates and inflation during episodes of undue currency depreciation in contrast to periods of low depreciation or appreciation. (Audio: Department of Economic Publications)