In August of 2001, the Central Bank of Chile modified its main monetary policy instrument, the inflation-indexed monetary policy interest rate MPR it had used so far, to a nominal or peso-denominated rate. A number of consequences, both in the conduct of monetary policy and in the country’s financial markets, can be associated to this new way of taking monetary policy actions. This article evaluates such effects, providing theoretical support and evidence to several hypotheses, some of them found in the existing literature. The main contribution of this so-called “nominalization”—that has not been discussed earlier—is that it extends the scope of operation of monetary policy, something that becomes important when both the interest rate and the inflation rate are low, as is the case today.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Article provided by Central Bank of Chile in its journal Economía Chilena.