The Monetary Policy Horizon in Chile and Other Inflation-Targeting Countries
AbstractTolerating some volatility in the rate of inflation leads the design of inflation target characteristics—in inflation-targeting economies—to reflect flexibility in four dimensions, namely: the price index that defines the target, the width of the target range, the midpoint of the monetary policy horizon (MPH) and the time range of the MPH. This paper evaluates Chile’s MPH—recently redefined by the Central Bank of Chile—in light of the Chilean experience and in an international comparison with other inflation targeters around the world. We review analytical and practical aspects of the formulation of the inflation-targeting framework. Then we present descriptive information on inflation, its volatility and its deviation from the target for all inflation-targeting countries, in order to infer the actual degree of tolerance countries have had toward inflation rates’ deviation and volatility. Next we describe the current design of monetary policy in the four aforesaid dimensions of flexibility in inflation-targeting countries. Finally, we review inflation forecasts published by the Central Bank of Chile and evaluate the consistency between the announced MPH and the Bank’s actual policy horizon.
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Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 438.
Date of creation: Dec 2007
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- Fabián Gredig U. & Klaus Schmidt-Hebbel D. & Rodrigo O. Valdés P., 2008. "The Monetary Policy Horizon in Chile and Other Inflation-Targeting Countries," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(1), pages 5-27, April.
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- Man-Keung Tang & Xiangrong Yu, 2011. "Communication of Central Bank Thinking and Inflation Dynamics," IMF Working Papers 11/209, International Monetary Fund.
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