This paper analyzes the relationship between exchange rates, inflation and disinflation in Latin America. The analysis concentrates on two central issues. First, the historical experience with fixed exchange rates in four Latin American countries is investigated. It is shown that even though these countries had the ability to undertake independent monetary policy, they chose to play by the "rules of the game". Until 1973, when the first oil shock took place, these countries strictly respected the constraints imposed by fixed exchange rates on their domestic credit policy. Between that date and the late 1980s, when the fixed rates were finally abandoned, they tried to ignore these constraints. This generated losses of reserves and increased inflation. The second issue addressed in the paper refers to the use of a nominal exchange rate anchor to reduce inflation. Data on Chile, Mexico and Venezuela are used to investigate the extent to which alternative exchange rate regimes affect inflationary inertia. It is found that fixing the exchange rate will not, on its own, reduce the degree of inertia.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4320.
Length: Date of creation: Apr 1993 Date of revision: Handle: RePEc:nbr:nberwo:4320
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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.:
Rudiger Dornbusch & Stanley Fischer, 1993.
"Moderate Inflation,"
NBER Working Papers
3896, National Bureau of Economic Research, Inc.
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Alan C. Stockman, 1993.
"International Transmission under Bretton Woods,"
NBER Chapters,
in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 317-356
National Bureau of Economic Research, Inc.
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