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Inflation Targeting, Reserves Accumulation, and Exchange Rate Management in Latin America

  • Roberto Chang

    ()

This paper examines whether central banks in Latin America have implemented conventional inflation targeting (IT) prescriptions, with a focus on foreign exchange intervention and official reserves accumulation policies. To this end, the paper reviews the experiences of Brazil, Chile, Colombia, and Peru, and finds significant departures from the dominant theory of IT. Foreign exchange intervention has often been used to prevent excessive financial volatility, bubbles, and panics. Ongoing patterns of reserves accumulation have been the outcome of an effort to build "war chests" against speculative attacks and, more recently, of a fight against real exchange appreciation. Possible justifications of the discrepancies between conventional IT theory and practice are discussed and generally found unsatisfactory.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 487.

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Handle: RePEc:bdr:borrec:487
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  1. Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers 646, Stockholm University, Institute for International Economic Studies.
  2. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
  3. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
  4. Jose De Gregorio & Andrea Tokman R., 2004. "Overcoming Fear of Floating: Exchange Rate Policies in Chile," Working Papers Central Bank of Chile 302, Central Bank of Chile.
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  9. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
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  11. Piti Disyatat & Gabriele Galati, 2005. "The effectiveness of foreign exchange intervention in emerging market countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 97-113 Bank for International Settlements.
  12. Bofinger, Peter & Wollmershäuser, Timo, 2003. "Managed floating as a monetary policy strategy," Munich Reprints in Economics 20206, University of Munich, Department of Economics.
  13. Leonardo Leiderman & Rodolfo Maino & Eric Parrado, 2006. "Inflation Targeting in Dollarized Economies," Working Papers Central Bank of Chile 368, Central Bank of Chile.
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  21. repec:rus:hseeco:124089 is not listed on IDEAS
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  23. Afonso Bevilaqua & Rodrigo Azevedo, 2005. "Provision of FX hedge by the public sector: the Brazilian experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 119-26 Bank for International Settlements.
  24. Stijn van Nieuwerburgh & Michael Kumhof, 2005. "Monetary Policy in an Equilibrium Portfolio Balance Model," 2005 Meeting Papers 851, Society for Economic Dynamics.
  25. José Darío Uribe & Jorge Toro, 2005. "Foreign exchange market intervention in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 139-49 Bank for International Settlements.
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