Inflation Expectations and Dollarisation in Peru

Dollarisation intensifies the challenges posed to monetary policy by the pass-through of the exchange rate to domestic prices. These challenges become even greater when real transactions are dollarised, contaminating the formation of inflation expectations. This introduces non-linearities and asymmetries into the implications of the exchange rate for inflation during larger currency depreciations, in contrast to the case of smaller depreciations and appreciations. Full publication: Inflation Mechanisms, Expectations and Monetary Policy