Description

This paper evaluates the role of non-structural factors in explaining the degree of pass-through of exchange rate movements to the general price level in the Chilean economy. We review the mechanisms that explain the presence of asymmetries and the results obtained by earlier studies for Chile. We estimate a Phillips curve allowing for, and assessing, the presence of non-linear effects in the pass-through of an exchange rate movement to prices since the adoption of inflation targeting. The results suggest that the degree of pass-through depends on the own characteristics of the exchange rate shock, mainly its expected persistence. The sign of the exchange rate variation also plays an important role. The evidence indicates that the state of the economy (output gap and real exchange rate gap) is less influential.