In a recent FRED Blog post, we showed how the exchange rate regime has had an impact on inflation rates in Europe. This time, we look at the dollar zone. Indeed, several countries have adopted the U.S. dollar as legal tender, and it is startling how their inflation rates have rapidly converged toward the U.S. rate. Just look at the graph. This convergence was likely the intention of those countries: Ecuador in 2000 and El Salvador in 2001 switched to the U.S. dollar to fight against very high inflation rates. Panama had already adopted the U.S. dollar in 1904 and has had no such problems with inflation.

How this graph was created: Search for “Inflation” and the respective countries. In the case of the U.S., change the units to “Percent Change from Year Ago” to match the units of the other series. The line width for the U.S. was increased and the color changed to black.

Suggested by Christian Zimmermann