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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 conventionalinflation targeting (IT) prescriptions, with a focus on foreign exchange intervention and officialreserves 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. Foreignexchange intervention has often been used to prevent excessive financial volatility, bubbles, andpanics. Ongoing patterns of reserves accumulation have been the outcome of an effort to buildwar chests" against speculative attacks and, more recently, of a fight against real exchangeappreciation. Possible justifications of the discrepancies between conventional IT theory andpractice are discussed and generally found unsatisfactory."

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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 004518.

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Length: 78
Date of creation: 14 Feb 2008
Date of revision:
Handle: RePEc:col:000094:004518
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  1. repec:rus:hseeco:124089 is not listed on IDEAS
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  3. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 17-51.
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  5. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
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  9. Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," IDB Publications (Working Papers) 6827, Inter-American Development Bank.
  10. Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
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  17. Grippa, Francisco & Gondo, Rocio, 2006. "Intervenciones cambiarias," Revista Moneda, Banco Central de Reserva del Perú, issue 133, pages 5-12.
  18. Hernando Vargas H., 2005. "Exchange Rate Policy and Inflation Targeting in Colombia," IDB Publications (Working Papers) 6828, Inter-American Development Bank.
  19. Stijn van Nieuwerburgh & Michael Kumhof, 2005. "Monetary Policy in an Equilibrium Portfolio Balance Model," 2005 Meeting Papers 851, Society for Economic Dynamics.
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  21. 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.
  22. 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.
  23. Hernando Vargas H., 2005. "Exchange Rate Policy and Inflation Targeting in Colombia," Research Department Publications 4425, Inter-American Development Bank, Research Department.
  24. Romain Ranciere & Olivier Jeanne, 2006. "The Optimal Level of International Reserves for Emerging Market Countries; Formulas and Applications," IMF Working Papers 06/229, International Monetary Fund.
  25. 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.
  26. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
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