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Monetary Policy Strategies for Latin America

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  • Frederic S. Mishkin
  • Miguel A. Savastano

Abstract

The paper examines possible monetary policy strategies for Latin America that may help lock-in the gains in the fight against inflation attained by the region during the 1990s. We start by calling for a refocus of the debate about the conduct of monetary policy away from thinking that it is about whether the nominal exchange rate should be fixed or flexible. Instead we argue that the focus should be on whether the monetary policy regime appropriately constrains discretion in monetary policymaking. This focus suggest that there are three basic frameworks that deserve serious discussion as possible, long-run strategies for monetary policy in Latin America: a hard exchange-rate peg, monetary targeting, and inflation targeting. We look at the advantages and disadvantages of each of these strategies and then examine the recent track record of monetary policy in some Latin American countries for clues as to which of the three strategies might be best suited to economies in the region.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7617.

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Date of creation: Mar 2000
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Publication status: published as Journal of Development Economics, Vol. 66, no. 2 (December 2001): 415-444
Handle: RePEc:nbr:nberwo:7617

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  1. Benjamin M. Friedman & Kenneth N. Kuttner, 1996. "A price target for U.S. monetary policy? Lessons from the experience with money growth targets," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago WP-96-14, Federal Reserve Bank of Chicago.
  2. Mishkin, Frederic S., 1999. "Lessons from the Asian crisis," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(4), pages 709-723, August.
  3. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1750, C.E.P.R. Discussion Papers.
  4. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers, Reserve Bank of Australia rdp9806, Reserve Bank of Australia.
  5. Arturo Estrella & Frederic S. Mishkin, 1996. "Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?," NBER Working Papers 5845, National Bureau of Economic Research, Inc.
  6. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2139, C.E.P.R. Discussion Papers.
  7. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 97-116, Spring.
  8. Rousseau, Peter L. & Sylla, Richard, 2005. "Emerging financial markets and early US growth," Explorations in Economic History, Elsevier, Elsevier, vol. 42(1), pages 1-26, January.
  9. Mishkin, F.S., 1998. "International Experiences with Different Monetary Policy Regimes," Papers, Stockholm - International Economic Studies 648, Stockholm - International Economic Studies.
  10. Calvo, Guillermo A. & Vegh, Carlos A., 1999. "Inflation stabilization and bop crises in developing countries," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 24, pages 1531-1614 Elsevier.
  11. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(396), pages 293-346, June.
  12. Guillermo A. Calvo & Carlos A. Végh, 1994. "Inflation Stabilization And Nominal Anchors," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 12(2), pages 35-45, 04.
  13. Carlo Cottarelli & Curzio Giannini, 1997. "Credibility Without Rules," IMF Occasional Papers, International Monetary Fund 154, International Monetary Fund.
  14. Lars E. O. Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," NBER Working Papers 5797, National Bureau of Economic Research, Inc.
  15. Ben Bernanke & Frederic Mishkin, 1992. "Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1992, Volume 7, pages 183-238 National Bureau of Economic Research, Inc.
  16. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
  17. Frederic S. Mishkin, 1991. "Asymmetric Information and Financial Crises: A Historical Perspective," NBER Chapters, National Bureau of Economic Research, Inc, in: Financial Markets and Financial Crises, pages 69-108 National Bureau of Economic Research, Inc.
  18. Vittorio Corbo, 1998. "Reaching One-Digit Inflation: The Chilean Experience," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 123-163, November.
  19. Mishkin, Frederic S. & Savastano, Miguel A., 2001. "Monetary policy strategies for Latin America," Journal of Development Economics, Elsevier, Elsevier, vol. 66(2), pages 415-444, December.
  20. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  21. Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers, International Monetary Fund 97/130, International Monetary Fund.
  22. Bennett T. McCallum, 1996. "Inflation Targeting in Canada, New Zealand, Sweden, the United Kingdom, and in General," NBER Working Papers 5579, National Bureau of Economic Research, Inc.
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