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Central banking in Latin America: changes, achievements, challenges

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  • Klaus Schmidt-Hebbel

    ()
    (Catholic Universty of Chile)

Abstract

Latin America's central banks were strengthened in the 1990s by independence laws, adoption of new policy regimes (foremost inflation targeting), and more transparent policy decisions bound by ex-ante rules and ex-post accountability. Central bank modernization - supported by significant fiscal adjustment and financial-sector strengthening - led most Latin American countries to converge to one-digit inflation rates and contributed to higher and more stable growth than in the past. Yet the region's new policy framework was put to severe testing by the global financial crisis and recession. Quick and innovative policy responses by the region's central banks helped domestic financial systems and the real economy to resist well the massive financial and real consequences of the banking crisis and recession in industrial countries. Empirical evidence reported here shows that the central banks' new policy framework and policy response during the crisis dampened significantly the amplitude of the recession. Having weathered well the global financial crisis and recession, now Latin America's central banks face a large array of policy challenges, which are reviewed in this lecture. Some are common to central banks in industrial and emerging economies, derived from the crisis itself and the issues it poses for improving the role of central banks in attaining more effectively both monetary and financial stability. Other challenges are idiosyncratic to emerging economies in the region (and elsewhere) that are facing renewed growth, high commodity prices, large capital inflows, and real exchange-rate appreciation.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/11/Fich/do1102e.pdf
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Occasional Papers with number 1102.

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Length: 52 pages
Date of creation: May 2011
Date of revision:
Publication status: Published also in Spanish, with the same number.
Handle: RePEc:bde:opaper:1102

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Keywords: Monetary Policy; Central Banks; Latin America;

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  1. Luis J. Álvarez & Guido Bulligan & Alberto Cabrero & Laurent Ferrara & Harald Stahl, 2010. "Housing Cycles In The Major Euro Area Countries," Banco de Espa�a Occasional Papers 1001, Banco de Espa�a.
  2. Ana Buisan & Esther Gordo, 1994. "Funciones de importación y exportación de la economía española," Investigaciones Economicas, Fundación SEPI, vol. 18(1), pages 165-192, January.
  3. Sarai Criado & Adrian van Rixtel, 2008. "Structured finance and the financial turmoil of 2007-2008: and introductory overview," Banco de Espa�a Occasional Papers 0808, Banco de Espa�a.
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