Advanced Search
MyIDEAS: Login

Inflation Targeting in Financially Stable Economies: Has it Been Flexible Enough?

In: Monetary Policy under Financial Turbulence

Contents:

Author Info

  • Mauricio Calani

    (University of Pennsylvania)

  • Kevin Cowan

    (Central Bank of Chile)

  • Pablo García S.

    (International Monetary Fund)

Abstract

The events surrounding the financial crisis and recession of 2008-2009 required significant policy responses by central banks. For formal inflation targeters (IT) a natural question arises about whether IT frameworks were flexible enough to address this unprecedented policy environment. In this paper we tackle this question by assessing the policy responses to the crisis of nine IT central banks that did not face systemic problems in their banking or financial systems. We first document substantial deviations of actual policy responses from prescriptions of conventional monetary policy reaction functions, beginning in the second half of 2008. Although several explanations for the deviations are offered, highlighting the extreme challenges at the time, we can more easily reconcile the findings with a decline in the persistence of monetary policy, again, in all cases. Second, we document the banks’ non-monetary-policy measures adopted at the time, and estimate their impact on local money markets (both in local currency and US dollars) and on exchange rates. While these measures helped broadly to normalize markets, firm conclusions on the effectiveness of specific measures are elusive, owing to the difficulty in comparing the different mix of measures adopted across countries and the significant heterogeneity in specific economies’ responses to these non-monetary policy measures.

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

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. 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.
File URL: http://www.bcentral.cl/estudios/banca-central/pdf/v16/Vol16_283-368.pdf
Download Restriction: no

Bibliographic Info

as in new window

This chapter was published in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.) Monetary Policy under Financial Turbulence, , chapter 01, pages 283-368, 2011.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v16c09pp283-368.

Handle: RePEc:chb:bcchsb:v16c09pp283-368

Contact details of provider:
Postal: Casilla No967, Santiago
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Vasco Cúrdia & Michael Woodford, 2009. "Credit spreads and monetary policy," Staff Reports 385, Federal Reserve Bank of New York.
  2. Cho-Hoi Hui & Hans Genberg & Tsz-Kin Chung, 2009. "Funding Liquidity Risk and Deviations from Interest-Rate Parity During the Financial Crisis of 2007-2009," Working Papers 0913, Hong Kong Monetary Authority.
  3. Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series 1999-39, Board of Governors of the Federal Reserve System (U.S.).
  4. Selva Demiralp & Erhan Artuc, 2009. "Provision of Liquidity through the Primary Credit Facility during the Financial Crisis: A Structural Analysis," 2009 Meeting Papers 215, Society for Economic Dynamics.
  5. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
  6. Moura, Marcelo L. & de Carvalho, Alexandre, 2010. "What can Taylor rules say about monetary policy in Latin America?," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 392-404, March.
  7. Ian Nield, 2008. "Evolution of the Reserve Bank’s liquidity facilities," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, December.
  8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  9. Alejandro Jara & Ramon Moreno & Camilo E Tovar, 2009. "The global crisis and Latin America: financial impact and policy responses," BIS Quarterly Review, Bank for International Settlements, June.
  10. Alan Bollard & Tim Ng, 2009. "Coping with global financial and economic stresses," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 34-45, March.
  11. International Monetary Fund, 2009. "How to Stop a Herd of Running Bears? Market Response to Policy Initiatives During the Global Financial Crisis," IMF Working Papers 09/204, International Monetary Fund.
  12. Jens H. E. Christensen & Jose A. Lopez & Glenn D. Rudebusch, 2009. "Do central bank liquidity facilities affect interbank lending rates?," Working Paper Series 2009-13, Federal Reserve Bank of San Francisco.
  13. Aït-Sahalia, Yacine & Andritzky, Jochen & Jobst, Andreas & Nowak, Sylwia & Tamirisa, Natalia, 2012. "Market response to policy initiatives during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 162-177.
  14. Carl Walsh, 2003. "Speed Limit Policies: The Output Gap and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 93(1), pages 265-278, March.
  15. James McAndrews & Asani Sarkar & Zhenyu Wang, 2008. "The effect of the Term Auction Facility on the London Inter-Bank Offered Rate," Staff Reports 335, Federal Reserve Bank of New York.
  16. Mark R. Stone & Etienne B. Yehoue & Kotaro Ishi, 2009. "Unconventional Central Bank Measures for Emerging Economies," IMF Working Papers 09/226, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ortiz, Marco, 2014. "Fat-Tailed Shocks and the Central Bank Reaction," Working Papers 2014-002, Banco Central de Reserva del Perú.
  2. J. Felipe Córdova, 2010. "Conventional Calibration Versus EDF Calibration," Working Papers Central Bank of Chile 589, Central Bank of Chile.
  3. Yan Carriere-Swallow & Pablo Garcia-Silva, 2013. "Capital Account Policies in Chile Macro-financial considerations along the path to liberalization," IMF Working Papers 13/107, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:chb:bcchsb:v16c09pp283-368. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.