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Do Latin American Central Bankers Behave Non-Linearly? The Experiences of Brazil, Chile, Colombia and Mexico

  • de Mello Luiz

    (OECD Office of the Secretary-General, 2 rue Andre Pascal, 75755 Paris Cedex 16, France)

  • Moccero Diego

    ()

    (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany)

  • Mogliani Matteo

    (Banque de France, 46-1383 DGEI-DCPM-DIACONJ, 31 Rue Croix des Petits Champs, 75049 Paris Cedex 01, France)

This paper contributes to the empirical literature on inflation zone targeting by estimating monetary reaction functions in a non-linear cointegration framework for Brazil, Chile, Colombia and Mexico. Evidence shows that central banks respond linearly to deviations of expected inflation from the target (the inflation gap) in Brazil and Chile. As the inflation gap widens, policy responses become weaker in Colombia and Mexico, a finding that most probably reflects a history of adverse supply shocks rather than a lack of resolve from the monetary authorities. Non-linearity is also found in the central bank’s response to fluctuations in the exchange rate in Brazil and Colombia.

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Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 17 (2013)
Issue (Month): 2 (April)
Pages: 141-165

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Handle: RePEc:bpj:sndecm:v:17:y:2013:i:2:p:141-165:n:7
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