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Latin American Central Bank Reform: Progress and Challenges

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  • Agustin Carstens

    (International Monetary Fund)

  • Luis I. Jacome H.

    (International Monetary Fund)

Abstract

This study takes stock of the institutional reform of monetary policy in Latin America since the early 1990s. It argues that strengthening the legal independence of central banks, together with macroeconomic policies, was instrumental in reducing inflation from three-digit annual rates in the 1990s to single-digit territory in 2004. The paper also discusses the main challenges of monetary policy today, namely, achieving price stability, restoring market confidence in domestic currencies, and sticking to policy consistency despite adverse effects of the volatility of capital flows. Finally, recurrent banking crises and lack of fiscal discipline are identified as the main risks for the success of monetary policy in Latin America.

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File URL: http://128.118.178.162/eps/mac/papers/0509/0509022.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0509022.

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Length: 44 pages
Date of creation: 15 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0509022

Note: Type of Document - pdf; pages: 44
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Web page: http://128.118.178.162

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Keywords: Central banks independence; monetary policy; inflation; Latin America;

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References

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  1. Eduardo Lora, 2001. "Structural reforms in Latin America: What has been reformed and how to measure it?," Research Department Publications 4287, Inter-American Development Bank, Research Department.
  2. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
  3. Siklos,Pierre L., 2006. "The Changing Face of Central Banking," Cambridge Books, Cambridge University Press, number 9780521034494, April.
  4. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4303, Inter-American Development Bank, Research Department.
  5. Brumm, Harold J, 2000. "Inflation and Central Bank Independence: Conventional Wisdom Redux," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 807-19, November.
  6. Loungani, Prakash & Sheets, Nathan, 1997. "Central Bank Independence, Inflation, and Growth in Transition Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 381-99, August.
  7. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  8. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346.
  9. Marc Zelmer & Andrea Schaechter & Mark R. Stone & Alina Carare, 2002. "Establishing Initial Conditions in Support of Inflation Targeting," IMF Working Papers 02/102, International Monetary Fund.
  10. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  11. W. Wascher & Palle S. Andersen, 1999. "Sacrifice ratios and the conduct of monetary policy in conditions of low inflation," BIS Working Papers 82, Bank for International Settlements.
  12. Luis Jácome & Francisco Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean," Macroeconomics 0508011, EconWPA.
  13. Haan, Jakob de & Kooi, Willem J., 2000. "Does central bank independence really matter?: New evidence for developing countries using a new indicator," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 643-664, April.
  14. Manfred Gärtner, 1997. "Central Bank Independence and the Sacrifice Ratio: The Dark Side of the Force," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 133(III), pages 513-538, September.
  15. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January.
  16. Chortareas, Georgios & Stasavage, David & Sterne, Gabriel, 2002. "Monetary Policy Transparency, Inflation and the Sacrifice Ratio," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(2), pages 141-55, April.
  17. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  18. Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152908, Tilburg University.
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Citations

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Cited by:
  1. Manoel Bittencourt, 2008. "Inflation and Financial Development: Evidence from Brazil," Working Papers 67, Economic Research Southern Africa.
  2. Manoel Bittencourt, 2008. "Macroeconomic Performance and Inequality: Brazil 1983-1994," Working Papers 101, Economic Research Southern Africa.
  3. Bittencourt, Manoel, 2011. "Financial Development and Economic Growth in Latin America: Is Schumpeter Right?," Proceedings of the German Development Economics Conference, Berlin 2011 13, Verein für Socialpolitik, Research Committee Development Economics.
  4. Luiz de Mello & Diego Moccero, 2007. "Monetary Policy and Macroeconomic Stability in Latin America: The Cases of Brazil, Chile, Colombia and Mexico," OECD Economics Department Working Papers 545, OECD Publishing.
  5. Luis Felipe Céspedes & Rodrigo Valdés, 2006. "Autonomía de Bancos Centrales: La Experiencia Chilena," Working Papers Central Bank of Chile 358, Central Bank of Chile.
  6. Manoel Bittencourt, 2010. "Financial Development and Economic Growth in Latin America: Schumpeter is Right!," Working Papers 201014, University of Pretoria, Department of Economics.
  7. Luis Ignacio Jácome, 2008. "Central Bank Involvement in Banking Crises in Latin America," IMF Working Papers 08/135, International Monetary Fund.
  8. Aitor Erce, 2012. "Selective sovereign defaults," Globalization and Monetary Policy Institute Working Paper 127, Federal Reserve Bank of Dallas.
  9. Aitor Erce Domiguez, 2010. "Debtor Discrimination During Sovereign Debt Restructurings," 2010 Meeting Papers 1324, Society for Economic Dynamics.
  10. Dayoub, Mariam & Lasagabaster, Esperanza, 2008. "General trends in competition policy and investment regulation in mandatory defined contribution markets in Latin America," Policy Research Working Paper Series 4720, The World Bank.
  11. Serge Jeanneau & Camilo E Tovar, 2008. "Domestic securities markets and monetary policy in Latin America: overview and implications," BIS Papers chapters, in: Bank for International Settlements (ed.), New financing trends in Latin America: a bumpy road towards stability, volume 36, pages 140-163 Bank for International Settlements.
  12. Manoel Bittencourt, 2009. "Polarisation, Populism and Hyperinflation[s]: Some Evidence from Latin America," Working Papers 200921, University of Pretoria, Department of Economics.
  13. Jeromin Zettelmeyer, 2006. "Growth and Reforms in Latin America," IMF Working Papers 06/210, International Monetary Fund.
  14. Jácome, Luis I. & Vázquez, Francisco, 2008. "Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean," European Journal of Political Economy, Elsevier, vol. 24(4), pages 788-801, December.

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