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Credibility and Inflation Targeting in an Emerging Market: The Case of Chile

  • Luis F. Céspedes
  • Claudio Soto

When the monetary authority lacks credibility it faces a larger trade-off between output and inflation. This poses important challenges for the implementation and design of an inflation targeting regime and an inflation stabilization process. In this paper we show how these challenges have determined different implementation phases of an inflation targeting regime in Chile, and how imperfect credibility is consistent with the different features of the disinflationary process followed by Chile during the 90s.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 312.

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Date of creation: Apr 2005
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Handle: RePEc:chb:bcchwp:312
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  1. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
  2. Christopher J. Erceg & Andrew T. Levin, 2001. "Imperfect credibility and inflation persistence," Finance and Economics Discussion Series 2001-45, Board of Governors of the Federal Reserve System (U.S.).
  3. Chan G. Huh & Kevin J. Lansing, 1997. "Expectations, credibility, and disinflation in a small macroeconomic model," Working Paper 9713, Federal Reserve Bank of Cleveland.
  4. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
  5. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  6. Roberto Duncan, 2003. "The Harberger-Laursen-Metzler Effect Revisited: An Indirect-Utility-Function Approach," Working Papers Central Bank of Chile 250, Central Bank of Chile.
  7. Vittorio Corbo, 1998. "Reaching One-Digit Inflation: The Chilean Experience," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 123-163, November.
  8. Collard, Fabrice & Dellas, Harris, 2004. "The New Keynesian Model with Imperfect Information and Learning," IDEI Working Papers 273, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. César Calderón & Roberto Duncan & Klaus Schmidt-Hebbel, 2004. "The role of credibility in the cyclical properties of macroeconomic policies in emerging economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(4), pages 613-633, December.
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