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Monetary policy and macroeconomic stability in Latin America: The cases of Brazil, Chile, Colombia and Mexico

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  • de Mello, Luiz
  • Moccero, Diego

Abstract

In 1999, new monetary policy regimes were adopted in Brazil, Chile, Colombia and Mexico, combining inflation targeting with floating exchange rates. These regime changes have been accompanied by lower volatility in the monetary stance in Brazil, Colombia and Mexico, despite higher inflation volatility in Brazil and Colombia. This paper estimates a conventional New Keynesian model for these four countries and shows that: i) the post-1999 regime has been associated with greater responsiveness by the monetary authority to changes in expected inflation in Brazil and Chile, while in Colombia and Mexico monetary policy has become less counter-cyclical, ii) lower interest-rate volatility in the post-1999 period owes more to a benign economic environment than to a change in the policy setting, and iii) the change in the monetary regime has not yet resulted in a reduction in output volatility in these countries.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 30 (2011)
Issue (Month): 1 (February)
Pages: 229-245

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Handle: RePEc:eee:jimfin:v:30:y:2011:i:1:p:229-245

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Brazil Chile Colombia Mexico Inflation targeting Structural model Impulse response functions Counterfactual analysis;

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Citations

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Cited by:
  1. Luiz de Mello & Diego Moccero & Matteo Mogliani, 2009. "Do Latin American Central Bankers Behave Non-Linearly?: The Experiences of Brazil, Chile, Colombia and Mexico," OECD Economics Department Working Papers 679, OECD Publishing.
  2. Adolfo Barajas & Roberto Steiner & Leonardo Villar & César Pabón, 2014. "Inflation Targeting in Latin America," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 011550, FEDESARROLLO.
  3. International Monetary Fund, 2008. "Is Monetary Policy Effective When Credit is Low?," IMF Working Papers 08/288, International Monetary Fund.
  4. Marjan Petreski, 2010. "An Overhaul of a Doctrine: Has Inflation Targeting Opened a New Era in Developing-country Peggers?," FIW Working Paper series 057, FIW.
  5. Aizenman, Joshua & Hutchison, Michael M. & Noy, Ilan, 2008. "Inflation Targeting and Real Exchange Rates in Emerging Markets," Santa Cruz Department of Economics, Working Paper Series qt6d23q90v, Department of Economics, UC Santa Cruz.
  6. Andrea Bonilla Bolanos, 2012. "External vulnerabilities and economic integration. Is the Union of South American Nations a promising project?," Working Papers 1238, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  7. Marjan Petreski, 2012. "Output Volatility and Exchange Rate Considerations Under Inflation Targeting : A Review," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 528-537.
  8. Jean-Yves Gnabo & Luiz de Mello & Diego Moccero, 2010. "Interdependencies between Monetary Policy and Foreign Exchange Interventions under Inflation Targeting: The Case of Brazil and the Czech Republic," International Finance, Wiley Blackwell, vol. 13(2), pages 195-221, 08.
  9. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.

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