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Inflation Targeting in Latin America

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Author Info
Vittorio Corbo
Klaus Schmidt-Hebbel

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Abstract

This paper analyzes Latin America’s recent experience with the use of inflation targeting (IT) while the region has made substantial progress toward eradicating high inflation. The paper assesses the implementation and results of inflation targeting in Latin America from a broad perspective. It starts by reviewing the issues relevant for the choice of exchange-rate regimes and monetary frameworks, documenting the evolution of exchange rate and monetary regimes in Latin America during the last two decades. Then it describes the Latin American and world samples of inflation targeters and compares their performance to non-targeters, focusing on their success in meeting inflation targets, their output sacrifice in achieving low inflation, and their output volatility. A more detailed analysis of five IT experiences follows for Brazil, Chile, Colombia, Mexico, and Peru, with reference to the design of IT in the world sample of inflation targeters. The paper concludes by focusing on the dynamics of inflation reduction in the longest IT experience in the region (the case of Chile), evaluating how IT has affected inflation expectations and hence the effectiveness of monetary policy, using a battery of alternative model estimations and simulations.

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Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 230.

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Date of creation: 2002
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Handle: RePEc:ioe:doctra:230

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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.:
  1. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February. [Downloadable!] (restricted)
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  2. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
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  4. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May. [Downloadable!] (restricted)
    Other versions:
  5. Felipe Morandé & Klaus Schmidt-Hebbel, 2000. "Chile's Peso: Better than (Just) Living with the Dollar?," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 37(110), pages 177-226. [Downloadable!]
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  6. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall. [Downloadable!] (restricted)
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  7. Sebastian Edwards & Miguel A. Savastano, 1999. "Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know?," NBER Working Papers 7228, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Dornbusch, Rudiger & Fischer, Stanley, 1993. "Moderate Inflation," World Bank Economic Review, Oxford University Press, vol. 7(1), pages 1-44, January.
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  13. 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. [Downloadable!] (restricted)
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  14. Ilan Goldfajn & Sergio R.C. Werlang, 2000. "The pass-through from depreciation to inflation : a panel study," Textos para discussão 423, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  15. Frederic S. Mishkin & Miguel A. Savastano, 2000. "Monetary Policy Strategies for Latin America," NBER Working Papers 7617, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Andrés Elberg & Vittorio Corbo & José Tessada, 1999. "Monetary Policy in Latin America: Underpinnings and Procedures," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 36(109), pages 897-927. [Downloadable!]
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  21. David Hargreaves & C John McDermott, 1999. "Issues relating to optimal currency areas: theory and implications for New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, September. [Downloadable!]
  22. Corbo, Vittorio & Fischer, Stanley, 1995. "Structural adjustment, stabilization and policy reform: Domestic and international finance," Handbook of Development Economics, in: Hollis Chenery† & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 44, pages 2845-2924 Elsevier. [Downloadable!] (restricted)
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  24. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
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  25. Vittorio Corbo, 1998. "Reaching One-Digit Inflation: The Chilean Experience," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 123-163, November. [Downloadable!]
  26. Corbo, Vittorio & Solimano, Andres, 1991. "Chile's experience with stabilization, revisited," Policy Research Working Paper Series 579, The World Bank. [Downloadable!]
  27. Kenneth N. Kuttner & Adam S. Posen, 1999. "Does talk matter after all? Inflation targeting and central bank behavior," Staff Reports 88, Federal Reserve Bank of New York. [Downloadable!]
  28. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 9-110. [Downloadable!]
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  29. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May. [Downloadable!] (restricted)
  30. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  31. Andrew Coleman, 1999. "Economic Integration and Monetary Union," Treasury Working Paper Series 99/06, New Zealand Treasury. [Downloadable!]
  32. Sergio Clavijo, . "Reflexiones Sobre Política Monetaria e "Inflación Objetivo" en Colombia," Borradores de Economia 141, Banco de la Republica de Colombia. [Downloadable!]
  33. Vittorio Corbo, 2000. "Monetary Policy in Latin America in the 90s," Working Papers Central Bank of Chile 78, Central Bank of Chile. [Downloadable!]
  34. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," Working Papers Central Bank of Chile 409, Central Bank of Chile. [Downloadable!]
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  2. Vittorio Corbo & José A. Tessada, 2003. "Growth and Adjustment in Chile: a Look at the 1990s," Working Papers Central Bank of Chile 204, Central Bank of Chile. [Downloadable!]
  3. Felipe Morandé, 2001. "A Decade of Inflation Targeting in Chile: Developments, Lessons, and Challenges," Working Papers Central Bank of Chile 115, Central Bank of Chile. [Downloadable!]
    Other versions:
  4. Volker Wieland, 2008. "Learning, Endogenous Indexation, and Disinflation in the New-Keynesian Model," Working Papers Central Bank of Chile 493, Central Bank of Chile. [Downloadable!]
    Other versions:
  5. Verónica Mies & Felipe Morandé & Matías Tapia, 2002. "Política Monetaria y Mecanismos de Transmisión: Nuevos Elementos para una Vieja Discusión," Working Papers Central Bank of Chile 181, Central Bank of Chile. [Downloadable!]
  6. Juthathip Jongwanich, 2006. "Exchange Rate Regimes, Capital Account Opening and Real Exchange Rates: Evidence from Thailand," Departmental Working Papers 2006-01, Australian National University, Economics RSPAS. [Downloadable!]
  7. Isabel Ruiz, 2005. "Empirical analysis on the real effects of inflation and exchange rate uncertainty: The case of Colombia," International Finance 0511006, EconWPA. [Downloadable!]
  8. Jose Sanchez-Fung, 2004. "Inflation targeting and monetary analysis in Chile and Mexico," Money Macro and Finance (MMF) Research Group Conference 2003 82, Money Macro and Finance Research Group. [Downloadable!]
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  9. Eduardo Levy Yeyati, 2006. "Exchange Rate Regimes in the 2000s: A Latin American Perspective," Business School Working Papers exchangerate, Universidad Torcuato Di Tella. [Downloadable!]
  10. Stefan Krause & Felix Rioja, 2006. "Financial Development and Monetary Policy Efficiency," Emory Economics 0613, Department of Economics, Emory University (Atlanta). [Downloadable!]
  11. Jorge Lorca, 2005. "Quantifying the Causal Effect of Inflation Targets," Working Papers Central Bank of Chile 337, Central Bank of Chile. [Downloadable!]
  12. Vittorio Corbo, 2002. "Exchange Rate Regimes in the Americas: Is Dollarization the Solution?," Documentos de Trabajo 229, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  13. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "Explicit inflation objectives and macroeconomic outcomes," Working Paper Series 383, European Central Bank. [Downloadable!]
  14. Dai, Meixing & Sidiropoulos, Moïse, 2003. "Inflation Targeting, Capital Mobility and Macroeconomic Stability," MPRA Paper 13858, University Library of Munich, Germany, revised May 2005. [Downloadable!]
  15. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?," NBER Working Papers 8397, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Stefan Krause & Fabio Mendez, 2005. "Institutions, Arrangements, and Preferences for Inflation Stability: Evidence and Lessons from a Panel Data Analysis," Emory Economics 0501, Department of Economics, Emory University (Atlanta). [Downloadable!]
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  17. Arminio Fraga & Ilan Goldfajn & Andre Minella, 2003. "Inflation Targeting in Emerging Market Economies," NBER Working Papers 10019, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Vittorio Corbo, 2002. "Another Look at Exhange Rate and Monetary Regime Options for Latin America," Documentos de Trabajo 228, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  19. John McDermott & Peter McMenamin, 2008. "Assessing Inflation Targeting in Latin America With a DSGE Model," Working Papers Central Bank of Chile 469, Central Bank of Chile. [Downloadable!]
  20. Grand Nathalie & Dropsy Vincent, 2005. "Exchange Rate And Inflation Targeting In Morocco And Tunisia," Macroeconomics 0507018, EconWPA. [Downloadable!]
  21. Morón, Eduardo & Winkelried, Diego, 2002. "Reglas de política monetaria para economías financieramente vulnerables," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 8, pages 49-76. [Downloadable!]
  22. Aliyu, Shehu Usman Rano & Englama, Abwaku, 2009. "Is Nigeria Ready for Inflation Targeting?," MPRA Paper 14870, University Library of Munich, Germany, revised 26 Apr 2009. [Downloadable!]
  23. Oscar Landerretche & Vittorio Corbo & Klaus Schmidt-Hebbel, 2001. "Does Inflation Targeting Make a Difference," Working Papers Central Bank of Chile 106, Central Bank of Chile. [Downloadable!]
    Other versions:
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