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Inflation targeting in Latin America: Empirical analysis using GARCH models

  • Carmen Broto

    ()

    (Banco de España)

During the last years, a number of countries have adopted formal inflation targeting (IT) monetary policy frameworks in a context of global inflation moderation. This paper studies inflation dynamics in eight Latin American countries, some of which have adopted formal targets. We analyze possible benefits associated with IT in terms of lower inflation, inflation volatility and volatility persistence. To describe inflation dynamics and evaluate its impact, we use an unobserved components model, where each component can follow a GARCH type process. In general, the main findings of the empirical exercise show that the adoption of IT has been useful to reduce the inflation level and volatility in these countries.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/08/Fic/dt0826e.pdf
File Function: First version, December 2008
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0826.

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Length: 35 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:bde:wpaper:0826
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