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Monetary Policy in Latin America in the 90s

In: Monetary Policy: Rules and Transmission Mechanisms

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  • Vittorio Corbo

    (centro de Estudios Públicos)

Abstract

This paper analyses Latin America’ monetary policy during the 90’s. The paper starts discussing the options that exist to carry out monetary policy, following by a discussion of the actual mechanisms chosen by the individual countries. Then, it goes on to study the main determinants of monetary policy in six countries: Chile, Colombia, Costa Rica, El Salvador, Nicaragua and Peru. For that purpose we estimate reaction functions for each country. These estimations are based on reaction functions of the form introduced by Taylor (1993) and extended by Clarida et al. (1998) in terms of forward-looking rules. We modify the framework of Clarida et. al. by using the gap between the expected and a time-dependent "target" inflation. The results show that only in the case of Chile the monetary authority uses monetary policy with a clear commitment to achieve the target inflation.

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

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Bibliographic Info

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This chapter was published in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Monetary Policy: Rules and Transmission Mechanisms, , chapter 6, pages 117-166, 2002.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v04c06pp117-166.

Handle: RePEc:chb:bcchsb:v04c06pp117-166

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References

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  1. Frederic S Mishkin, 1997. "Strategies for Controlling Inflation," RBA Annual Conference Volume, Reserve Bank of Australia, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
  2. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers, Stockholm University, Institute for International Economic Studies 638, Stockholm University, Institute for International Economic Studies.
  3. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  4. Mishkin, Frederic S., 1998. "International Experiences With Different Monetary Policy Regimes," Seminar Papers, Stockholm University, Institute for International Economic Studies 648, Stockholm University, Institute for International Economic Studies.
  5. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," NBER Working Papers 5893, National Bureau of Economic Research, Inc.
  6. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  7. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262522608, December.
  8. Sebastian Edwards & Carlos A. Végh, 1997. "Banks and Macroeconomic Disturbances Under Predetermined Exchange Rates," CEMA Working Papers: Serie Documentos de Trabajo., Universidad del CEMA 115, Universidad del CEMA.
  9. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, World Bank Group, vol. 6(3), pages 353-98, September.
  10. Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
  11. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  12. Eichengreen, Barry, 1999. "Kicking the Habit: Moving from Pegged Rates to Greater Exchange Rate Flexibility," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(454), pages C1-14, March.
  13. Dornbusch, Rudiger, 1992. "Lessons from Experiences with High Inflation," World Bank Economic Review, World Bank Group, World Bank Group, vol. 6(1), pages 13-31, January.
  14. Guillermo A. Calvo & Carlos A. Vegh, 1999. "Inflation Stabilization and BOP Crises in Developing Countries," NBER Working Papers 6925, National Bureau of Economic Research, Inc.
  15. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262031981, December.
  16. Corbo, Vittorio & de Melo, Jaime, 1987. "Lessons from the Southern Cone Policy Reforms," World Bank Research Observer, World Bank Group, World Bank Group, vol. 2(2), pages 111-42, July.
  17. Andrés Elberg & Vittorio Corbo & José Tessada, 1999. "Monetary Policy in Latin America: Underpinnings and Procedures," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 36(109), pages 897-927.
  18. Fischer, Stanley, 1995. "Central-Bank Independence Revisited," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 201-06, May.
  19. Vittorio Corbo, 1998. "Reaching One-Digit Inflation: The Chilean Experience," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 123-163, November.
  20. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
  21. Andrew Berg & Paolo Mauro & Michael Mussa & Alexander K. Swoboda & Esteban Jadresic & Paul R. Masson, 2000. "Exchange Rate Regimes in an Increasingly Integrated World Economy," IMF Occasional Papers 193, International Monetary Fund.
  22. Juan Andrés Fontaine, 1991. "La Administración de la Política Monetaria en Chile, 1985-89," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 28(83), pages 109-130.
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Citations

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Cited by:
  1. Luis-Felipe Zanna & Marco Airaudo, 2005. "Learning about which measure of inflation to target," Computing in Economics and Finance 2005, Society for Computational Economics 176, Society for Computational Economics.
  2. Berg, Andrew & Borensztein, Eduardo & Mauro, Paolo, 2002. "An evaluation of monetary regime options for Latin America," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 13(3), pages 213-235, December.
  3. Carlos Ibarra, 2005. "The Behavior of Interest Rate Differentials Under Shifting Exchange Rate Regimes: The Experience of Chile, Colombia and Israel," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 42(125), pages 103-131.
  4. Moron, Eduardo & Winkelried, Diego, 2005. "Monetary policy rules for financially vulnerable economies," Journal of Development Economics, Elsevier, Elsevier, vol. 76(1), pages 23-51, February.
  5. Marco Airaudo & Luis-Felipe Zanna, 2005. "Interest rate rules, endogenous cycles, and chaotic dynamics in open economies," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 849, Board of Governors of the Federal Reserve System (U.S.).
  6. de Mello Luiz & Moccero Diego & Mogliani Matteo, 2013. "Do Latin American Central Bankers Behave Non-Linearly? The Experiences of Brazil, Chile, Colombia and Mexico," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 17(2), pages 141-165, April.
  7. César Calderón & Roberto Duncan & Klaus Schmidt-Hebbel, 2003. "The Role of Credibility in the Cyclical Properties of Macroeconomic Policies in Emerging Economies," Working Papers Central Bank of Chile, Central Bank of Chile 237, Central Bank of Chile.
  8. Carlos A. Ibarra, 2004. "The Interest Rate-Exchange Rate Link in the Mexican Float," Economia Mexicana NUEVA EPOCA, , vol. 0(1), pages 5-28, January-J.
  9. Morón, Eduardo & Winkelried, Diego, 2002. "Reglas de política monetaria para economías financieramente vulnerables," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 8, pages 49-76.
  10. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  11. Muñoz, Jorge & Recabal, Claudio & Acuña, Andrés, 2007. "La política monetaria y su impacto sobre los retornos reales del mercado bursátil chileno
    [Monetary Policy and its impact over the Chilean stock market's real returns]
    ," MPRA Paper 14392, University Library of Munich, Germany.
  12. Arend, Mario, 2005. "Efectos de una nueva medida de shock monetario bajo el esquema de metas de inflación en Chile
    [Effects of a New Measure of Monetary Shock Under Inflation Targeting in Chile]
    ," MPRA Paper 27156, University Library of Munich, Germany.

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