02085cas a2200241 a 4500 AALejournalIMF016933 230101c9999 xx r poo 0 0eng d 5.00 USD 9781498350976 1018-5941 BD-DhAAL BD-DhAAL Perez Ruiz, Esther. Outside the Band : Depreciation and Inflation Dynamics in Chile / Esther Perez Ruiz. Washington, D.C. : International Monetary Fund, 2016. 1 online resource (33 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper examines inflation dynamics in Chile during the last peso depreciation episode 2013-15. The evidence is for substantial pass-through effects to inflation, given the large and persistent depreciation movement. Widespread indexation practices in non-traded goods markets are found to amplify the inflation response to the depreciation, while the role of wage indexation is less relevant to the inflation dynamics. Overall, inflation would have remained within the central bank's target band absent the peso depreciation. The analysis also shows that tightening monetary policy in response to a depreciation shock can be costly in terms of output: the response of activity to rates is found to be strong, while the transmission from activity to inflation is found to be weak. Simulations under uncertainty about the extent of the pass-through also suggest that monetary policy can play a countercyclical role in the face of depreciation shocks at a moderate inflationary cost, as long as inflation expectations remain anchored. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2016/129 Full text available on IMF http://elibrary.imf.org/view/journals/001/2016/129/001.2016.issue-129-en.xml IMF e-Library