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Efectos de la Nominalización de la Política Monetaria en Chile

  • Rodrigo Fuentes
  • Alejandro Jara
  • Klaus Schmidt-Hebbel
  • Matías Tapia
  • Erika Arraño

The Central Bank of Chile replaced its monetary policy instrument in August 2001, shifting from a monetary policy rate (MPR) linked to an indexed unit of account (UF, defined by the lagged CPI) to a nominal MPR denominated in pesos. This policy change was complemented with a significant change in the Central Bank’s liability structure, from short and medium-term indexed debt to nominal peso debt. This paper analyses, both conceptually and empirically, the main effects of MPR nominalization on financial markets and the conduct and effectiveness of monetary policy. As opposed to previous studies on this subject, this paper concludes that the main advantage of nominalization was a widening of monetary policy options, precluding critical situations in the conduct of monetary policy that would have occurred at low MPR levels under the previous scheme of indexed MPRs.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 197.

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Date of creation: Jan 2003
Date of revision:
Handle: RePEc:chb:bcchwp:197
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  1. Oscar Landerretche & Vittorio Corbo & Klaus Schmidt-Hebbel, 2001. "Does Inflation Targeting Make a Difference," Working Papers Central Bank of Chile 106, Central Bank of Chile.
  2. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
  3. Juan Andrés Fontaine, 2002. "Consecuencias de la Nominalización de la Política Monetaria," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 39(117), pages 253-275.
  4. Willem H. Buiter & Nikolaos Panigirtzoglou, 1999. "Liquidity Traps: How to Avoid Them and How to Escape Them," NBER Working Papers 7245, National Bureau of Economic Research, Inc.
  5. Friedman, Milton, 1970. "A Theoretical Framework for Monetary Analysis," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 193-238, March-Apr.
  6. M. Fase, 2005. "On Economics and Religion," De Economist, Springer, vol. 153(1), pages 85-106, December.
  7. 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.
  8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  9. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  10. Norman Loayza & Klaus Schmidt-Hebbel, 2002. "Monetary Policy Functions and Transmission Mechanisms: An Overview," 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 1, pages 001-020 Central Bank of Chile.
  11. Oscar Landerretche & Fernando Lefort & Rodrigo O. Valdés, 2002. "Causes and Consequences of Indexation: A Review of the Literature," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.), Indexation, Inflation and Monetary Policy, edition 1, volume 2, chapter 2, pages 019-064 Central Bank of Chile.
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