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New Frontiers for Monetary Policy in Chile

Listed author(s):
  • Pablo S. García
  • Luis Oscar Herrera
  • Rodrigo Valdés

This paper assesses the efficiency of the current Inflation Targeting (IT) scheme in place at the Central Bank of Chile. Using a small macroeconomic model of the Chilean economy, our main results are as follows: (i) an efficient monetary policy requires a bias towards output stabilization around its long run trend; (ii) the switch to forecast-targeting, implicit in the current IT scheme in Chile, results in an efficiency gain; (iii) targeting core inflation is not efficient; (iv) ceteris paribus, efficiency could be enhanced if monetary policy leans against the wind when facing shocks to the cost of international finance.

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File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc125.pdf
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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 125.

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Date of creation: Nov 2001
Handle: RePEc:chb:bcchwp:125
Contact details of provider: Postal:
Casilla No967, Santiago

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Fax: (562) 698 4847
Web page: http://www.bcentral.cl/

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  1. Juan Pablo Medina & Rodrigo O. Valdés, 2002. "Optimal Monetary Policy Rules under Inflation Range Targeting," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 5, pages 095-116 Central Bank of Chile.
  2. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  3. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Working Papers in Applied Economic Theory 98-03, Federal Reserve Bank of San Francisco.
  4. Rómulo Chumacero, 2000. "Se Busca una Raíz Unitaria: Evidencia para Chile," Working Papers Central Bank of Chile 86, Central Bank of Chile.
  5. Andrew T.. Levin & Volker Wieland & John Williams, 1999. "Robustness of Simple Monetary Policy Rules under Model Uncertainty," NBER Chapters, in: Monetary Policy Rules, pages 263-318 National Bureau of Economic Research, Inc.
  6. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
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