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A Decade of Inflation Targeting in Chile: Developments, Lessons, and Challenges

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  • Felipe Morandé L.

Abstract

Chile was among the first countries in the world to adopt a monetary framework based on an explicit, publicly announced, annual inflation target, when the term "inflation targeting" had not been even formalized. The country’s inflationary past suggested to combine tough inflation targeting parameters (to enhance the Central Bank’s reputation) and a gradual transition from moderately high inflation to a long-run inflation goal of 3%. After attaining this long-run objective in 1999 and a reputation of inflation-averse, the Central Bank of Chile has moved toward flexibility along the credibility-flexibility trade-off. Finally, having a third objective in the form of an asymmetric threshold for the current-account deficit was reflected in some episodes during which the implicit short-run output stabilization objective was made less important. Notwithstanding the success in reducing inflation during the 90s, without apparently paying real costs, the current inflation target regime faces a few challenges in its quest for keeping a low and stable inflation.

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  • Felipe Morandé L., 2001. "A Decade of Inflation Targeting in Chile: Developments, Lessons, and Challenges," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 4(1), pages 35-62, April.
  • Handle: RePEc:chb:bcchec:v:4:y:2001:i:1:p:35-62
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    2. Jorge Enrique Restrepo Londoño, 1998. "Reglas monetarias en una economía pequeña y abierta," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, vol. 17(33), pages 61-84, July.
    3. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," NBER Working Papers 12163, National Bureau of Economic Research, Inc.
    4. Rhenals M., Remberto & Saldarriaga, Juan Pablo, 2008. "Una regla de Taylor óptima para Colombia, 1991-2006," Revista Lecturas de Economía, Universidad de Antioquia - CIE, November.
    5. Javier García-Cicco & Enrique Kawamura, 2014. "Central Bank Liquidity Management and “Unconventional” Monetary Policies," Research Department Publications IDB-WP-484, Inter-American Development Bank, Research Department.

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