Disinflation in Chile, Colombia and Mexico: Do Domestic Monetary Policy Changes Deserve Credit?
This paper examines inflation in three Latin American nations. All of the nations have experienced higher-than-desired inflation in years past, and all have seen a palpable decrease in inflation in recent decades. We thus test for structural change in the dynamics of inflation. We find that all three have undergone some significant break in the mean or persistence of price changes. The break dates, however, do not generally correspond closely to any highly publicized changes in monetary policy such as inflation targeting or central bank independence. This finding contradicts some previous studies which purport to find a large effect of certain policies-formal targets, central bank independence, etc.-on inflation. Indeed further examination suggests some credit for disinflation should go to external factors. This is somewhat worrisome, as it indicates that a change to a more volatile global macroeconomic environment could make it costly for emerging markets to maintain price stability.
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