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Is Inflation Targeting Still on Target? The Recent Experience of Latin America

Author

Listed:
  • Luis Felipe Céspedes
  • Roberto Chang
  • Andrés Velasco

Abstract

type="main" xml:lang="en"> This paper reviews the recent experience of a group of Latin American inflation-targeting (IT) nations. We document repeated and large deviations from the standard IT framework: exchange market interventions have been widespread; the real exchange rate has often become a target of policy; and other non-conventional policy tools, especially changes in reserve requirements, but occasionally also taxes and restrictions on international capital movements, have come into common use. As in developed nations, during the 2008–2009 crisis, issues of liquidity provision took centre stage. The emerging modified framework of monetary policy is found to have been generally effective during the crisis but raises several important policy questions.

Suggested Citation

  • Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2014. "Is Inflation Targeting Still on Target? The Recent Experience of Latin America," International Finance, Wiley Blackwell, vol. 17(2), pages 185-208, June.
    • Handle: RePEc:bla:intfin:v:17:y:2014:i:2:p:185-208
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    Cited by:

    1. Emiliano Libman, 2019. "Destabilizing Balance Sheet Effects in the New Consensus Model," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 590-611, October.
    2. Kose, M. Ayhan & Matsuoka, Hideaki & Panizza, Ugo & Vorisek, Dana, 2019. "Inflation Expectations: Review and Evidence," CEPR Discussion Papers 13601, C.E.P.R. Discussion Papers.
    3. Goran Petrevski, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," Papers 2305.17474, arXiv.org.
    4. Valera, Harold Glenn A. & Holmes, Mark J. & Hassan, Gazi M., 2017. "How credible is inflation targeting in Asia? A quantile unit root perspective," Economic Modelling, Elsevier, vol. 60(C), pages 194-210.
    5. Erwin Hansen & Marco Morales, 2021. "When does the Central Bank intervene the foreign exchange market? Estimating a time‐varying threshold intervention function," International Review of Finance, International Review of Finance Ltd., vol. 21(2), pages 688-698, June.
    6. Santiago Taboada & Emiliano Libman, 2021. "Sticky Inflationary Expectations and Inflation Targeting in (some) Emerging and Less Developed Economies," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 40(82), pages 83-111.
    7. Joshua Aizenman & Daniel Riera-Crichton, 2015. "Desafíos del Manejo de la Liquidez y de los Activos Internacionales en Latinoamérica," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 18(2), pages 62-96, August.
    8. Carrasco, Alex & Florián Hoyle, David, 2025. "External shocks and FX intervention policy in financially dollarized economies," Journal of Macroeconomics, Elsevier, vol. 84(C).
    9. Carlo Panico, Francesco Purificato, Elvira Sapienza, 2015. "Benefici, problemi e prospettive dell’integrazione monetaria in Europa (Benefits, issues and future of monetary integration in Europe)," Moneta e Credito, Economia civile, vol. 68(271), pages 305-339.
    10. Roberto Chang & Andrés Velasco, 2017. "Financial Frictions and Unconventional Monetary Policy in Emerging Economies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(1), pages 154-191, April.
    11. Alex Carrasco & David Florian Hoyle & Rafael Nivin, 2019. "SFX Interventions, Financial Intermediation, and External Shocks in Emerging Economies," Working Papers 160, Peruvian Economic Association.
    12. Pérez, Fernando, 2015. "Comparing the Transmission of Monetary Policy Shocks in Latin America: A Hierarchical Panel VAR," Working Papers 2015-015, Banco Central de Reserva del Perú.
    13. Tenreyro, Silvana & Drechsel, Thomas & McLeay, Michael, 2019. "Monetary policy for commodity booms and busts," CEPR Discussion Papers 14030, C.E.P.R. Discussion Papers.
    14. Ortiz, Marco & Inca, Arthur & Solf, Fabrizio, 2024. "Welfare implications of nomimal GDP targeting in a small open economy," MPRA Paper 119999, University Library of Munich, Germany.
    15. Mr. Yan Carriere-Swallow & Mr. Luis Ignacio Jácome & Mr. Nicolas E Magud & Alejandro M. Werner, 2016. "Central Banking in Latin America: The Way Forward," IMF Working Papers 2016/197, International Monetary Fund.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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