Learning to Adjust: The Effects of Currency Depreciations on Inflation in Latin America

By Yan Carrière-Swallow and Bertrand Gruss

(Versions in Español and Português)

Falling global commodity prices and the normalization of monetary policy in the United States have contributed to widespread currency depreciations in Latin America. In theory, a falling currency is expected to create inflation by driving up the price of imported goods and services—triggering what economists call exchange rate pass-through.

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Latin America—Taking the Helm

The new Latin America can provide some lessons to the advanced countries—such as saving for a rainy day, and making sure that risks in the banking system are under control. Of course, Latin America is not immune to any storms that come out of Europe. No one is. In our interconnected world, there is simply nowhere to hide. And so countries in the region should take all necessary precautions and make all needed preparations.

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