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Assessing Inflation Targeting in Latin America With a DSGE Model

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  • John McDermott
  • Peter McMenamin

Abstract

In this paper we assess Inflation Targeting with a unique treatment and control group of strictly Latin American countries. We estimate a small Dynamic Stochastic General Equilibrium model to determine whether economic behavior within an economy fundamentally changes under Inflation Targeting. We find that although Inflation Targeting central banks appear to be if anything, slightly more aggressive in responding to inflation than Non-Inflation Targeting central banks, this has not resulted in more forward looking inflation expectations by economic agents.

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File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc469.pdf
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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 469.

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Date of creation: May 2008
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Handle: RePEc:chb:bcchwp:469

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  1. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  2. Luis F. Céspedes & Claudio Soto, 2005. "Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience," International Finance, Wiley Blackwell, vol. 8(3), pages 545-575, December.
  3. Rodrigo Caputo & Felipe Liendo & Juan Pablo Medina, 2007. "New Keynesian Models for Chile in the Inflation-Targeting Period," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 13, pages 507-546 Central Bank of Chile.
  4. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  5. Cho, Seonghoon & Moreno, Antonio, 2006. "A Small-Sample Study of the New-Keynesian Macro Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1461-1481, September.
  6. Thomas Lubik & Frank Schorfheide, 2005. "A Bayesian Look at New Open Economy Macroeconomics," Economics Working Paper Archive 521, The Johns Hopkins University,Department of Economics.
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Cited by:
  1. Carlos A. Carrasco & Jesús Ferreiro, 2011. "Inflation Targeting and Economic Performance: The Case of Mexico," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(5), pages 675-692, December.

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