## 1. Inflation Dynamics in Historical Perspective

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---

### Introduction and context
- Chile is a small-open, commodity-exporting economy with exports heavily oriented to copper goods and imports including fuels, machinery, and equipment.
- The end of the commodity super-cycle in 2013 led to a sizeable peso depreciation:
  - "almost 50 percent relative to the U.S. dollar and 15 percent in nominal effective terms, cumulatively 2013−15."
- Headline inflation exceeded the central bank’s target band (2−4 percent) for 23 consecutive months during 2013−15, even as inflation expectations at 2 years remained well anchored.
- Two transmission channels from depreciation to inflation are highlighted:
  - direct inflationary impact through traded goods; and
  - second-round effects through non-traded goods and wages (amplified potentially by widespread indexation via unidad de fomento (UF)).

### Main empirical and policy findings (executive bullets)
- Direct depreciation pass-through to traded goods dominates the inflation dynamics during the 2013−15 episode.
- Second-round effects from widespread indexation via UF pricing (or wage indexation) are more limited.
- Counterfactual analysis: absent the peso depreciation, inflation would have comfortably remained within the target band.
- Monetary tightening in response to a depreciation shock can be costly in terms of output because:
  - the response of activity to rates is found to be strong, while
  - the transmission from activity to inflation is found to be weak.
- A credible monetary authority (e.g., the Central Bank of Chile) may not need to raise rates to keep inflation on track in the face of a depreciation shock.
- Simulations under uncertainty about pass-through indicate that, as long as inflation expectations remain anchored, monetary accommodation can cushion the fall in activity at a moderate inflationary cost.

### Inflation developments during the floating exchange rate period
- Adoption of an inflation-targeting regime in 1990 reduced inflation from 30 percent in 1990 to 3 percent in 1999.
- A floating exchange rate regime adopted in 1999 and a stationary inflation target band (2−4) percent in 2001 reinforced credibility; inflation generally remained within target except for large terms-of-trade swings.
- Specific 2013−15 dynamics:
  - Headline inflation moved out of the target band in April 2014, peaked at 5.7 percent in October 2014, thereafter declined and crossed the 4 percent upper limit in May 2015; since then inflation proved more volatile and generally remained outside the target range.
  - The central bank eased monetary policy in October 2013, cutting the policy rate from 5 to 3 percent by November 2014.
  - Prospective rates normalization by the Fed and a slight drift in one-year inflation expectations led the central bank to tighten monetary policy throughout Q42016, with total hikes of just 50 basis points by January 2015. Since then, policy has been at a standstill amidst continued signs of economic weakness.

### Model-free diagnosis: inertia and stationarity (monthly data, 1999−2015)
- CPI composition and weights (2015):
  - Total CPI weight: 100.00 percent
  - Non-tradable component of CPI: 43.64 percent
  - Tradable component of CPI: 56.36 percent
  - Selected division weights and tradable/non-tradable splits:
    - Food and non-alcoholic beverages: CPI Weight 19.06; Tradable 19.06; Non-tradable 0.00
    - Lodging facilities, water, electricity, gas and other fuels: CPI Weight 13.83; Non-tradable 8.19; Tradable 5.63
    - Education: CPI Weight 8.09; Non-tradable 8.09; Tradable 0.00
    - Transport: CPI Weight 14.47; Non-tradable 5.73; Tradable 8.74
    - Total: 100.00; Non-tradable 43.64; Tradable 56.36
- Tests of stationarity and persistence:
  - Variance-ratio results (k lags) for CPI: k=3 → 0.45; k=6 → 0.26; k=12 → 0.15; k=24 → 0.09; k=36 → 0.05.
  - ADF test: null of unit root rejected at 99 percent confidence for headline CPI, traded CPI, and non-traded CPI.
  - Estimated AR(1) coefficients over 1999−2015:
    - traded goods: 0.24
    - headline: 0.33
    - non-traded goods: 0.41
  - Interpretation: a one percentage point shock to prices in period t dies off after 4, 5, and 6 months for traded, headline, and non-traded inflation, respectively (based on the AR(1) coefficients reported).
- Structural breaks and inertia changes:
  - Rolling Quandt-Andrews breakpoint tests do not reject the null of no breakpoints at 99 percent confidence for traded-goods and overall inflation across 142 possible dates tested.
  - Non-traded goods CPI presents a breakpoint around 2010M03.
  - Post-break (2011−15) non-traded goods inflation shows a lower degree of inertia: the AR(1) coefficient turns negative (reported example: AR(1) coefficient = -0.3 and intercept = 0.5 for 2011−2015 in a stylized chart), suggesting modest overshooting before stabilization, though the change is not deemed economically large relative to the longer sample.

### Inflation dynamics in an indexed small open economy (theory and Chilean features)
- Indexation mechanism and prevalence:
  - Chile implements widespread indexation via UF (Unidad de Fomento), a currency unit distinct from the peso that preserves the purchasing power of a representative basket of consumer goods.
  - UF pricing is used across many prices: non-traded goods (house rentals, education tuition, health insurance), the financial market (consumer loans, mortgages, fixed-income securities, long-term government securities), and the budget (income tax brackets, public wages, pension payments, alimony).
  - Private sector wages, consumer good prices, and stock prices are among those priced in peso; evidence suggests staggered wage indexation with a frequency of adjustment of around nine quarters (Cobb and Opazo, 2008).
- Analytical focus:
  - The paper uses a simple analytical framework (following Landerretche and others, 2000) to study inflation dynamics in an indexed small open economy and to quantify the relative importance of depreciation pass-through versus second-round effects via indexation.
  - The headline CPI is decomposed into traded goods and non-traded goods inflation for analysis.

### Methodology overview (suite of techniques)
- Model-free time-series tests (variance-ratio, ADF, rolling breakpoint tests) to measure inertia and stationarity.
- Partial equilibrium framework to characterize inflation in an indexed small open economy and to assess pass-through versus second-round indexation amplification.
- VAR estimation to analyze joint dynamics of activity, prices, and monetary policy in response to a depreciation shock.
- Semi-structural general equilibrium model simulations under uncertainty about pass-through, with alternative assumptions on monetary policy conduct and inflation expectations.

### Conceptual framework and model structure
- Headline, traded goods, and non-traded goods CPI inflation at month t are denoted NTtTtt,,, πππ, with α denoting the weight of traded goods in the CPI basket.
- Traded goods inflation is modeled by a weak version of the purchasing power parity condition, modified to take account of the business cycle:
  - Equation (2): ( ) 3t2t1Tt yyfneer t − + + = γπγγπ*
  - Variables: reer_t denotes the rate of nominal effective exchange depreciation, π*_t denotes the rate of foreign inflation, and (y_t − y*_t) denotes the output gap at month t.
  - The output gap term allows for pro-cyclical pass-through effects, where firms compress margins rather than pass on exchange rate changes when the economy cools.
- Non-traded goods inflation includes:
  - Influence of past aggregate inflation owing to indexation practice,
  - Nominal wage growth adjusted for non-traded goods labor productivity growth (λ_t^N − λ_t^w),
  - Forward-looking inflation expectations term (π^e_{t+1,t−}).
  - Represented by Equation (3) in the source.
- Nominal wage growth follows a Phillips-curve specification with:
  - Indexation to past and current inflation,
  - Growth of aggregate labor productivity λ_t,
  - The unemployment rate gap (u* − u_t).
  - Represented by Equation (4) in the source.
- Footnote on wage indexation: Wage indexation with respect to current inflation stabilizes the real wage, preserving full employment (exacerbating employment fluctuations) in the face of nominal (real) shocks. However, wages typically adjust to inflation infrequently and with a lag; in this context wage indexation defines a nominal type of rigidity and need not stabilize the real wage even in the face of nominal shocks.

### Estimation approach and sample
- Equations (2)−(4) are estimated by OLS for monthly data ranging 2003−15.
- Estimated coefficients overall have the expected signs and are significant (at 99 percent confidence in most cases).
- Estimated depreciation pass-through to traded-goods inflation after one month is small (around 5 percent), with further exchange rate lag terms proving non-significant.
- Evidence of inertia (indexation effects):
  - Indexation explains over ¼ of the variance for non-traded goods inflation.
  - Indexation explains slightly less than one fifth of the variance for wage inflation.
  - This suggests that indexation practice via UF pricing is more relevant to the inflation dynamics than wage indexation.

### Depreciation pass-through and second-round effects
- By the estimated system (1)−(4), a nominal effective exchange rate depreciation:
  - Has a direct impact on traded goods inflation,
  - Ripples through non-traded goods and wages via indexation, confirming results from the previous literature.
- Persistence and dissipation of a one percentage depreciation shock (illustration from the estimates):
  - Dissipates after four months for traded goods and headline CPI.
  - Dissipates after six months for non-traded goods inflation.
  - Barely affects wage inflation.
- Additional empirical note:
  - The de-indexation of wages contributed to the successful implementation of inflation fighting campaigns during the 1990s (Lefort and Schmidt-Hebbel, 2002).

### Box 1. Indexation in Chile — overview and implications
- Chile has two units of account: the peso and the Unidad de Fomento (UF).
- UF is the amount of pesos necessary to buy a representative basket of consumer goods and is a purely abstract unit of account; goods quoted in UFs can only be purchased with pesos.
- UF was introduced in 1967 and came into wide use as a unit of account in the 1980s; UF is calculated and published daily by the Central Bank of Chile.
- Uses of the UF:
  - Widely used for: rent payments such as mortgages, car loans, and long-term government securities.
  - All taxes are expressed in UFs.
  - Pension payments, alimony, and child support payments are automatically tied to the UF.
  - Houses and offices for sale are often quoted in UFs.
- UF pricing versus dollarization:
  - UF-indexed payments are constant in terms of purchasing power insofar as the UF is linked to Chile’s CPI; dollarized payments cannot provide the same protection.
  - Indexation via a unit of account is automatic and symmetric, which solves a coordination problem that could otherwise lead to partial indexation and raise distribution concerns.
- Caveats and risks:
  - An important caveat in adopting an indexed unit of account is that it may contribute to greater inflation inertia.
  - While indexation protected against past high inflation and supported financial market development, when a formerly high-inflation country achieves moderate-to-low inflation, the benefits of indexation can be diluted and its costs rise (indexation can increase inertia and dampen relative price adjustment).

### Implications for policy
- Given substantial direct pass-through from depreciation to traded goods, large and persistent depreciations can explain prolonged deviations of inflation from target even when inertia is moderate and stationary.
- Because tightening in response to a depreciation can impose large output costs while delivering limited disinflation through activity channels, a credible central bank with anchored inflation expectations may opt for accommodation to cushion output losses, accepting moderate inflationary costs.
- Indexation via UF magnifies some transmission channels but, in the Chilean episode studied, does not appear to be the primary driver of inflation persistence compared with direct pass-through from the large depreciation.

*Source: IMF staff chapter "1. Inflation Dynamics in Historical Perspective" (content unit from the provided PDF).*

### 1. Inflation Dynamics in Historical Perspective ____________________________________7

### 1. Inflation Dynamics in Historical Perspective

### Introduction and context
- Chile is a small-open, commodity-exporting economy with exports heavily oriented to copper goods and imports including fuels, machinery, and equipment.
- The end of the commodity super-cycle in 2013 led to a sizeable peso depreciation:
  - "almost 50 percent relative to the U.S. dollar and 15 percent in nominal effective terms, cumulatively 2013−15."
- Headline inflation exceeded the central bank’s target band (2−4 percent) for 23 consecutive months during 2013−15, even as inflation expectations at 2 years remained well anchored.
- Two transmission channels from depreciation to inflation are highlighted:
  - direct inflationary impact through traded goods; and
  - second-round effects through non-traded goods and wages (amplified potentially by widespread indexation via unidad de fomento (UF)).

### Main empirical and policy findings (executive bullets)
- Direct depreciation pass-through to traded goods dominates the inflation dynamics during the 2013−15 episode.
- Second-round effects from widespread indexation via UF pricing (or wage indexation) are more limited.
- Counterfactual analysis: absent the peso depreciation, inflation would have comfortably remained within the target band.
- Monetary tightening in response to a depreciation shock can be costly in terms of output because:
  - the response of activity to rates is found to be strong, while
  - the transmission from activity to inflation is found to be weak.
- A credible monetary authority (e.g., the Central Bank of Chile) may not need to raise rates to keep inflation on track in the face of a depreciation shock.
- Simulations under uncertainty about pass-through indicate that, as long as inflation expectations remain anchored, monetary accommodation can cushion the fall in activity at a moderate inflationary cost.

### Inflation developments during the floating exchange rate period
- Adoption of an inflation-targeting regime in 1990 reduced inflation from 30 percent in 1990 to 3 percent in 1999.
- A floating exchange rate regime adopted in 1999 and a stationary inflation target band (2−4) percent in 2001 reinforced credibility; inflation generally remained within target except for large terms-of-trade swings.
- Specific 2013−15 dynamics:
  - Headline inflation moved out of the target band in April 2014, peaked at 5.7 percent in October 2014, thereafter declined and crossed the 4 percent upper limit in May 2015; since then inflation proved more volatile and generally remained outside the target range.
  - The central bank eased monetary policy in October 2013, cutting the policy rate from 5 to 3 percent by November 2014.
  - Prospective rates normalization by the Fed and a slight drift in one-year inflation expectations led the central bank to tighten monetary policy throughout Q42016, with total hikes of just 50 basis points by January 2015. Since then, policy has been at a standstill amidst continued signs of economic weakness.

### Model-free diagnosis: inertia and stationarity (monthly data, 1999−2015)
- Data breakdown (Table 1, CPI divisions, 2015):
  - Total CPI weight: 100.00 percent
  - Non-tradable component of CPI: 43.64 percent
  - Tradable component of CPI: 56.36 percent
  - Selected division weights and tradable/non-tradable splits:
    - Food and non-alcoholic beverages: CPI Weight 19.06; Tradable 19.06; Non-tradable 0.00
    - Lodging facilities, water, electricity, gas and other fuels: CPI Weight 13.83; Non-tradable 8.19; Tradable 5.63
    - Education: CPI Weight 8.09; Non-tradable 8.09; Tradable 0.00
    - Transport: CPI Weight 14.47; Non-tradable 5.73; Tradable 8.74
    - (Total row repeated) Total 100.00; Non-tradable 43.64; Tradable 56.36
- Tests of stationarity and persistence (monthly inflation, 1999−2015):
  - Variance-ratio results (k lags): for CPI: k=3 → 0.45; k=6 → 0.26; k=12 → 0.15; k=24 → 0.09; k=36 → 0.05.
  - ADF test: null of unit root rejected at 99 percent confidence for headline CPI, traded CPI, and non-traded CPI.
  - Estimated AR(1) coefficients over 1999−2015:
    - traded goods: 0.24
    - headline: 0.33
    - non-traded goods: 0.41
  - Interpretation: a one percentage point shock to prices in period t dies off after 4, 5, and 6 months for traded, headline, and non-traded inflation, respectively (based on the AR(1) coefficients reported).
- Structural breaks and inertia changes:
  - Rolling Quandt-Andrews breakpoint tests do not reject the null of no breakpoints at 99 percent confidence for traded-goods and overall inflation across 142 possible dates tested.
  - Non-traded goods CPI presents a breakpoint around 2010M03.
  - Post-break (2011−15) non-traded goods inflation shows a lower degree of inertia: the AR(1) coefficient turns negative (reported example: AR(1) coefficient = -0.3 and intercept = 0.5 for 2011−2015 in a stylized chart), suggesting modest overshooting before stabilization, though the change is not deemed economically large relative to the longer sample.

### Inflation dynamics in an indexed small open economy (theory and Chilean features)
- Indexation mechanism:
  - Chile implements widespread indexation via UF (Unidad de Fomento), a currency unit distinct from the peso that preserves the purchasing power of a representative basket of consumer goods.
  - UF pricing is used across many prices: non-traded goods (house rentals, education tuition, health insurance), the financial market (consumer loans, mortgages, fixed-income securities, long-term government securities), and the budget (income tax brackets, public wages, pension payments, alimony).
  - Private sector wages, consumer good prices, and stock prices are among those priced in peso; evidence suggests staggered wage indexation with a frequency of adjustment of around nine quarters (Cobb and Opazo, 2008).
- Analytical focus and framework:
  - The paper uses a simple analytical framework (following Landerretche and others, 2000) to study inflation dynamics in an indexed small open economy and to quantify the relative importance of depreciation pass-through versus second-round effects via indexation.
  - The headline CPI is decomposed into traded goods and non-traded goods inflation for analysis.

### Methodology overview (suite of techniques)
- Model-free time-series tests (variance-ratio, ADF, rolling breakpoint tests) to measure inertia and stationarity.
- Partial equilibrium framework to characterize inflation in an indexed small open economy and to assess pass-through versus second-round indexation amplification.
- VAR estimation to analyze joint dynamics of activity, prices, and monetary policy in response to a depreciation shock.
- Semi-structural general equilibrium model simulations under uncertainty about pass-through, with alternative assumptions on monetary policy conduct and inflation expectations.

### Implications for policy
- Given substantial direct pass-through from depreciation to traded goods, large and persistent depreciations can explain prolonged deviations of inflation from target even when inertia is moderate and stationary.
- Because tightening in response to a depreciation can impose large output costs while delivering limited disinflation through activity channels, a credible central bank with anchored inflation expectations may opt for accommodation to cushion output losses, accepting moderate inflationary costs.
- Indexation via UF magnifies some transmission channels but, in the Chilean episode studied, does not appear to be the primary driver of inflation persistence compared with direct pass-through from the large depreciation.

*Source: IMF staff chapter "1. Inflation Dynamics in Historical Perspective" (content unit from the provided PDF).*

### conclusions are substantially modified in the face of lagged, uncoordinated indexation (see Jadresic, 1998).

### _wp16129 - conclusions are substantially modified in the face of lagged, uncoordinated indexation (see Jadresic, 1998).

### Conceptual framework and model structure
- Headline, traded goods, and non-traded goods CPI inflation at month t are denoted NTtTtt,,, πππ, with α denoting the weight of traded goods in the CPI basket.
- Traded goods inflation is modeled by a weak version of the purchasing power parity condition, modified to take account of the business cycle:
  - Equation (2): ( ) 3t2t1Tt yyfneer t − + + = γπγγπ*
  - Variables: reer_t denotes the rate of nominal effective exchange depreciation, π*_t denotes the rate of foreign inflation, and (y_t − y*_t) denotes the output gap at month t.
  - The output gap term allows for pro-cyclical pass-through effects, where firms compress margins rather than pass on exchange rate changes when the economy cools.
- Non-traded goods inflation includes:
  - Influence of past aggregate inflation owing to indexation practice,
  - Nominal wage growth adjusted for non-traded goods labor productivity growth (λ_t^N − λ_t^w),
  - Forward-looking inflation expectations term (π^e_{t+1,t−}).
  - Represented by Equation (3) in the source.
- Nominal wage growth follows a Phillips-curve specification with:
  - Indexation to past and current inflation,
  - Growth of aggregate labor productivity λ_t,
  - The unemployment rate gap (u* − u_t).
  - Represented by Equation (4) in the source.
- Footnote on wage indexation: Wage indexation with respect to current inflation stabilizes the real wage, preserving full employment (exacerbating employment fluctuations) in the face of nominal (real) shocks. However, wages typically adjust to inflation infrequently and with a lag; in this context wage indexation defines a nominal type of rigidity and need not stabilize the real wage even in the face of nominal shocks.

### Estimation approach and sample
- Equations (2)−(4) are estimated by OLS for monthly data ranging 2003−15.
- Estimated coefficients overall have the expected signs and are significant (at 99 percent confidence in most cases).
- Estimated depreciation pass-through to traded-goods inflation after one month is small (around 5 percent), with further exchange rate lag terms proving non-significant.
- Evidence of inertia (indexation effects):
  - Indexation explains over ¼ of the variance for non-traded goods inflation.
  - Indexation explains slightly less than one fifth of the variance for wage inflation.
  - This suggests that indexation practice via UF pricing is more relevant to the inflation dynamics than wage indexation.

### Depreciation pass-through and second-round effects
- By the estimated system (1)−(4), a nominal effective exchange rate depreciation:
  - Has a direct impact on traded goods inflation,
  - Ripples through non-traded goods and wages via indexation, confirming results from the previous literature.
- Persistence and dissipation of a one percentage depreciation shock (illustration from the estimates):
  - Dissipates after four months for traded goods and headline CPI.
  - Dissipates after six months for non-traded goods inflation.
  - Barely affects wage inflation.

### Additional empirical note
- The de-indexation of wages contributed to the successful implementation of inflation fighting campaigns during the 1990s (Lefort and Schmidt-Hebbel, 2002).

*Source: _wp16129 - conclusions are substantially modified in the face of lagged, uncoordinated indexation (see Jadresic, 1998).*

### Box 1. Indexation in Chile

### Box 1. Indexation in Chile

### Overview
- Chile has two units of account: the peso and the Unidad de Fomento (UF).
- UF is the amount of pesos necessary to buy a representative basket of consumer goods and is a purely abstract unit of account; goods quoted in UFs can only be purchased with pesos.
- Pricing in UFs indicates the seller’s will to receive a fixed quantity of CPI basket-equivalents as payment.

### Origin and rationale
- UF was introduced in 1967 by the Chilean government as an inflation-protection device and came into wide use as a unit of account in the 1980s.
- UF is calculated and published daily by the Central Bank of Chile.
- UF is the world’s first case of indexation through a money-like unit, as opposed to relying on an indexation formula.
- Analogues in other countries: Unidad de Valor Constante (Ecuador), Unidad de Inversión (Mexico), Unidad de Poder Adquisitivo Constante (Colombia), and Unidad Reajustable (Uruguay), though none are as ingrained as the UF in Chile.

### Uses of the UF
- Widely used for: rent payments such as mortgages, car loans, and long-term government securities.
- All taxes are expressed in UFs.
- Pension payments, alimony, and child support payments are automatically tied to the UF.
- Houses and offices for sale are often quoted in UFs.
- Wages are denominated in pesos but remain influenced by the UF (changes in the peso value of the UF are taken into account in wage deliberations).

### How the system works (illustrative example)
- A landlord receiving a monthly rate of 10 UF:
  - At 23,000 pesos/UF the landlord receives 230,000 pesos.
  - If the peso content of the UF rises to 25,000 pesos/UF the monthly rental becomes 250,000 pesos.
- The nominal peso amount can change while the payment’s UF value (or consumer baskets) remains constant.

### UF pricing versus dollarization (advantages)
- UF-indexed payments are constant in terms of purchasing power insofar as the UF is linked to Chile’s CPI; dollarized payments cannot provide the same protection (international purchasing power does not hold).
- Dollarized economies are vulnerable to balance sheet mismatches in the face of a currency depreciation.
- Indexation via a unit of account is automatic and symmetric, which solves a coordination problem that could otherwise lead to partial indexation and raise distribution concerns.

### Caveats and risks
- An important caveat in adopting an indexed unit of account is that it may contribute to greater inflation inertia — a dimension explored in this paper.
- While indexation protected against past high inflation and supported financial market development, when a formerly high-inflation country achieves moderate-to-low inflation, the benefits of indexation can be diluted and its costs rise (indexation can increase inertia and dampen relative price adjustment).

*Source: Box 1. Indexation in Chile (content unit).*

### REFERENCES

### REFERENCES

### Exchange Rate Pass-Through and External Shocks
- Albagli E., A. Naudon, and R.Vergara, 2015, “Inflation Dynamics in LATAM: A Comparison with Global Trends and Implications for Monetary Policy,” Economic Policy Papers Central Bank of Chile 58, Central Bank of Chile.  
- Belaisch, Agnes, 2003, “Exchange Rate Pass-Through in Brazil,” IMF Working Paper, WP/03/141, International Monetary Fund.  
- Ca’Zorzi, M., E. Hahn, and M. Sánchez, 2007, “Exchange Rate Pass-Through in Emerging Markets,” ECB Working Paper, No. 739.  
- Faruqee, Hamid, 2006, “Exchange Rate Pass-Through in the Euro Area,” IMF Staff Papers, 53, 63–88.  
- Goldfajn, I., and S. Werlang, 2000, “The Pass-Through from Depreciation to Inflation: A Panel Study,” Banco Central do Brasil, Working Paper Series, No. 26, Brasilia.  
- Gopinath, G., 2015, “The International Price System,” NBER Working Paper No. 21646 October 2015.  
- Hahn, Elke, 2003, “Pass-Through of External Shocks to Euro Area Inflation,” ECB Working Paper No. 243, European Central Bank.  
- Justel, S., and A. Sansone, 2015, “Exchange Rate Pass-Through to Prices: Evidence for Chile,” Working paper No. 747, Central Bank of Chile.  
- Kolerus, C., Menkulasi, J. and Moriyama, K., 2016, “Exchange Rate Pass-Through in Emerging Markets,” forthcoming as IMF Working Paper.  
- Leigh, D., and M. Rossi, 2002, “Exchange Rate Pass-Through in Turkey.” IMF Working Paper, WP/02/204, International Monetary Fund.  
- McCarthy, J., 1999, “Pass-Through of Exchange Rates and Import Prices to Domestic    Inflation in Some Industrialized Economies,” BIS Working Papers 79, Bank of International Settlements.  
- Stulz, J., 2007, “Exchange Rate Pass-Through in Switzerland: Evidence from Vector Autoregressions,” Swiss National Bank Economic Studies, No. 4.  
- International Monetary Fund, 2016, “Exchange Rate Pass-Through in Latin America,” chapter 4 in Regional Economic Outlook: Western Hemisphere.

### Indexation, Wage Indexation, and Inflation Dynamics
- Cobb, M., and L. Opazo, 2008, “Microeconomic Evidence of Nominal Wage Rigidity in Chile,” Working paper No. 496, Central Bank of Chile.  
- De la Huerta C., F. Giuliano, and E. Luttini, 2016, “Traspaso de Tipo de Cambio a Inflacion por Subclases para Chile,” Mimeo. Central Bank of Chile.  
- Edmunds, J.C., and F. Arroyo, 2012, “Indexing and Chile’s Economic Growth,” Public and Municipal Finance, Volume 1, Issue 1, 2012.  
- Fischer, 1988, “Real Balances, the Exchange Rate and Indexation: Real Variables in a Disinflation,” Quarterly Journal of Economics 103(1): 27−49.  
- García, C.J, and J.E Restrepo, 2011, “Price and Wage Inflation in Chile,” in Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries. Bank for International Settlements, ISBN 9291316296. - 2001, p. 109-130.  
- Gray, J.A., 1976, “Wage Indexation—A Macroeconomic Approach,” Journal of Monetary Economics 2(2): 221−35.  
- Jadresic, E., 1998, “The Macroeconomic Effects of Wage Indexation Revisited,” IMF Working Papers No. 98/15, International Monetary Fund.  
- Landerretche, O., F. Lefort, and R. Valdés, 2002, “Causes and Consequences of Indexation: A Review of the Literature,” Central Banking, Analysis, and Economic Policies Book Series, in F. Lefort, K. Schmidt-Hebbel, N. Loayza and K. Schmidt-Hebbel, Indexation, Inflation and Monetary Policy, Central Bank of Chile.  
- Lefort F, and K. Schmidt-Hebbel, 2002, “Indexation, Inflation, and Monetary Policy,” Central Bank of Chile.  
- Shiller, R.J., 2002, “Indexed Units of Account: Theory and Assessment of Historical Experience,” Central Banking, Analysis, and Economic Policies Book Series, in F. Lefort, K. Schmidt-Hebbel, N. Loayza and K. Schmidt-Hebbel, Indexation, Inflation and Monetary Policy, Central Bank of Chile.  
- Simonsen, M.H., 1983, “Indexation: Current Theory and the Brazilian Experience,” in Inflation, Debt, and Indexation, edited by R. Dornbusch and M.H. Simonsen. MIT Press.  
- Pincheira, p., and H. Rubio, 2015, “The Low Predictive Power of Simple Phillips Cuves in Chile,” CEPAL Review No. 116.

### Monetary Policy, Inflation Targeting, and Neutral Rates
- Central Bank of Chile, 2016, Monetary Policy Report, March 2016.  
- De Gregorio, J., A. Tokman, and R. Valdés, “Flexible Exchange Rate with Inflation Targeting in Chile: Experience and Issues,” IDB Working Paper No. 450.  
- Landerretche, O., F. Morandé, and K. Schmidt-Hebbel, 2000, “Inflation Targets and Stabilization in Chile,” in Monetary Policy Frameworks in a Global Context, edited by L. Mahadeva and G. Sterne (London: Routledge).  
- Leiderman, L., and H. Bar-Or, 1999, “Monetary Policy Rules Transmission Mechanisms under Inflation Targeting in Israel,” Bank of Israel, unpublished, October.  
- Mishkin, F, and M. Savastano, 2002, “Monetary Policy Strategies for Latin America,” NBER Working Papers 7617, National Bureau of Economic Research, Inc.  
- Perrelli, R. and S.K. Roache, 2014, “Time-Varying Neutral Interest Rate—The Case of Brazil,” IMF Working Paper, WP/14/84, International Monetary Fund.

### Modeling, Methods, and Macro Dynamics
- Andrle, M., P. Blagrave, P. Espaillat, K. Honjo, B. Hunt, M. Kortelainen, R. Lalonde, D. Laxton, E. Mavroeidi, D. Muir, S. Mursula, and S. Snudden, 2015, “The Flexible System of Global Models—FSGM,” IMF Working Paper, WP/15/64, International Monetary Fund.  
- Cochrane, J.H., 1988, “How Big is the Random Walk in GNP?,” Journal of Political Economy 96(5): 893−920.  
- McCarthy, J., 1999, “Pass-Through of Exchange Rates and Import Prices to Domestic    Inflation in Some Industrialized Economies,” BIS Working Papers 79, Bank of International Settlements.  
- Perrelli, R. and S.K. Roache, 2014, “Time-Varying Neutral Interest Rate—The Case of Brazil,” IMF Working Paper, WP/14/84, International Monetary Fund.  

*wp16129 - REFERENCES*

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