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The "great moderation" and the monetary transmission mechanism in Chile

In: Transmission mechanisms for monetary policy in emerging market economies

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Author Info

  • Cristina Betancour

    (Central Bank of Chile)

  • José De Gregorio

    (Central Bank of Chile)

  • Juan Pablo Medina

    (Central Bank of Chile)

Abstract

This paper analyzes the significant reduction in the volatility of output growth and inflation seen in the Chilean economy in the present decade. This reduced volatility, sometimes called the “great moderation,” coincides with several important changes to the Chilean macroeconomic framework, including the establishment of a full-fledged inflation targeting regime for monetary policy and a rule based on a target for the structural fiscal surplus. The paper examines the impact of these changes on the monetary transmission mechanism and explores how the “great moderation” has been affected by economic shocks and by the endogenous response of policy as reflected in the monetary transmission mechanism. The paper also reports results of a monetary vector autoregression model that finds important changes in the way shocks are transmitted to the Chilean economy.

(This abstract was borrowed from another version of this item.)

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This chapter was published in:

  • Bank for International Settlements, 2008. "Transmission mechanisms for monetary policy in emerging market economies," BIS Papers, Bank for International Settlements, number 35, May.
    This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 35-07.

    Handle: RePEc:bis:bisbpc:35-07

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    1. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
    2. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    3. Jose De Gregorio, 2003. "Productivity Growth and Disinflation in Chile," Working Papers Central Bank of Chile 246, Central Bank of Chile.
    4. Cristina Betancour & José De Gregorio & Alejandro Jara, 2006. "Improving the banking system: the Chilean experience," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 163-80 Bank for International Settlements.
    5. José De Gregorio, 2001. "La Política Cambiaria," Economic Policy Papers Central Bank of Chile 02, Central Bank of Chile.
    6. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
    7. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    8. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
    9. Verónica Mies & Felipe Morandé & Matías Tapia, 2002. "Política Monetaria y Mecanismos de Transmisión: Nuevos Elementos para una Vieja Discusión," Working Papers Central Bank of Chile 181, Central Bank of Chile.
    10. Jorge Roldos, 2006. "Disintermediation and Monetary Transmission in Canada," IMF Working Papers 06/84, International Monetary Fund.
    11. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
    12. Rodrigo Alfaro & Helmut Franken & Carlos García & Alejandro Jara, 2003. "Bank Lending Channel and the Monetary Transmission Mechanism: the Case of Chile," Working Papers Central Bank of Chile 223, Central Bank of Chile.
    13. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
    14. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    15. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
    16. Juan Pablo Medina & Claudio Soto, 2007. "Copper Price, Fiscal Policu and Business Cycle in Chile," Working Papers Central Bank of Chile 458, Central Bank of Chile.
    17. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
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    Cited by:
    1. James L. Butkiewicz & Zeliha Ozdogan, 2013. "Financial crisis, monetary policy reform and the monetary transmission mechanism in Turkey," Working Papers 13-08, University of Delaware, Department of Economics.
    2. Donal McGettigan & Kenji Moriyama & Jean F Noah Ndela Ntsama & Francois Painchaud & Haonan Qu & Chad Steinberg, 2013. "Monetary Policy in Emerging Markets," IMF Working Papers 13/96, International Monetary Fund.
    3. Gamber, Edward N. & Smith, Julie K. & Weiss, Matthew A., 2011. "Forecast errors before and during the Great Moderation," Journal of Economics and Business, Elsevier, vol. 63(4), pages 278-289, July.
    4. Bank for International Settlements & Federal Reserve Bank of Atlanta, 2008. "New financing trends in Latin America: a bumpy road towards stability," BIS Papers, Bank for International Settlements, number 36, May.
    5. Serge Jeanneau & Camilo E Tovar, 2008. "Domestic securities markets and monetary policy in Latin America: overview and implications," BIS Papers chapters, in: Bank for International Settlements (ed.), New financing trends in Latin America: a bumpy road towards stability, volume 36, pages 140-163 Bank for International Settlements.

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