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The 1990s Institutional Reform of Monetary Policy in Latin America

  • Agustín Carstens,
  • Luis I. Jácome

This study takes stock of the institutional reform of monetary policy in Latin America since the early 1990s. It argues that strengthening the legal independence of central banks, together with macroeconomic policies, was instrumental in reducing inflation from three-digit annual rates in the 1990s to single-digit territory in 2004. The paper also discusses the main challenges of monetary policy today, namely, achieving price stability, restoring market confidence in domestic currencies, and sticking to policy consistency despite adverse effects of the volatility of capital flows. Finally, recurrent banking crises and lack of fiscal discipline are identified as the main potential risks for the success of monetary policy in Latin America.

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File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc343.pdf
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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 343.

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Date of creation: Dec 2005
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Handle: RePEc:chb:bcchwp:343
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  1. Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Other publications TiSEM 0401b17a-e2c7-4179-ace9-a, Tilburg University, School of Economics and Management.
  2. Prakash Loungani & Nathan Sheets, 1995. "Central bank independence, inflation and growth in transition economies," International Finance Discussion Papers 519, Board of Governors of the Federal Reserve System (U.S.).
  3. Mark Zelmer & Andrea Schaechter & Mark R. Stone & Alina Carare, 2002. "Establishing Initial Conditions in Support of Inflation Targeting," IMF Working Papers 02/102, International Monetary Fund.
  4. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
  5. Eijffinger, S.C.W. & Schaling, E. & Hoeberichts, M.M., 1997. "Central Bank independence : A sensitivity analysis," Discussion Paper 1997-10, Tilburg University, Center for Economic Research.
  6. Eduardo Lora, 2001. "Structural Reforms in Latin America: What Has Been Reformed and How to Measure It," Research Department Publications 4293, Inter-American Development Bank, Research Department.
  7. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  8. Haan, Jakob de & Kooi, Willem J., 2000. "Does central bank independence really matter?: New evidence for developing countries using a new indicator," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 643-664, April.
  9. Chortareas, Georgios & Stasavage, David & Sterne, Gabriel, 2002. "Monetary Policy Transparency, Inflation and the Sacrifice Ratio," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(2), pages 141-55, April.
  10. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, March.
  11. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
  12. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January.
  13. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  14. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  15. Brumm, Harold J, 2000. "Inflation and Central Bank Independence: Conventional Wisdom Redux," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 807-19, November.
  16. Jácome H, Luis I., 2003. "Independencia legal de la banca central en la América Latina e inflación," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(280), pages 673-719, octubre-d.
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