Posted

March 26, 2013 11:33:13 AM

Date

2013-03

Author

Luis Felipe Cespedes, Roberto Chang, and Andres Velasco

Affiliation

Universidad Adolfo Ibáñez, Rutgers University and National Bureau of Economic Research, and Columbia University and National Bureau of Economic Research

Title

Is Inflation Targeting Still on Target? The Recent Experience of Latin America

Summary /
Abstract

This paper reviews the recent experience of a half-dozen Latin American inflation targeting (IT) nations. Repeated and large deviations from the standard IT framework are documented: exchange market interventions have been lasting and widespread; the real exchange rate has often become a target of policy, though this target is seldom made explicit; a range of other non-conventional policy tools, especially changes in reserve requirements but occasionally taxes or restrictions on international capital movements, also came into common use. As in developed nations, during the 2008-2009 crisis issues of liquidity provision took center stage. A first evaluation of the emerging modified framework of monetary policy is also attempted. In general terms, the new approach seems to have been effective, at the very least since the region weathered the crisis reasonably well. But also, and perhaps more importantly, many questions remain about the desirability of non-conventional monetary policies in Latin America.

Keywords

Inflation targeting, monetary policy, financial crisis

URL

http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=37635005

Remarks

Are countries in the region moving toward a new monetary policy framework? Or are they simply adding bells and whistles to the basic Inflation Targeting logic? The authors of this paper are inclined to take the second alternative. What seems to be emerging is not an alternative regime to IT, but rather an expanded and enriched version. The old IT may no longer be on target, but perhaps a new version soon will be.

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