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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. Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers 646, Stockholm University, Institute for International Economic Studies.
  2. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
  3. Jose De Gregorio & Andrea Tokman R., 2004. "Overcoming Fear of Floating: Exchange Rate Policies in Chile," Working Papers Central Bank of Chile 302, Central Bank of Chile.
  4. 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.
  5. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2007. "External Constraints on Monetary Policy and the Financial Accelerator," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 295-330, 03.
  6. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-128.
  7. Luis Felipe Cespedes & Roberto Chang & Andres Velasco, 2000. "Balance Sheets and Exchange Rate Policy," NBER Working Papers 7840, National Bureau of Economic Research, Inc.
  8. Leonardo Leiderman & Rodolfo Maino & Eric Parrado, 2006. "Inflation Targeting in Dollarized Economies," Working Papers Central Bank of Chile 368, Central Bank of Chile.
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  10. Bofinger, Peter & Wollmershäuser, Timo, 2003. "Managed floating as a monetary policy strategy," Munich Reprints in Economics 20206, University of Munich, Department of Economics.
  11. David K. Backus & Patrick J. Kehoe, 1988. "On the denomination of government debt: a critique of the portfolio balance approach," Staff Report 116, Federal Reserve Bank of Minneapolis.
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  16. M. S. Mohanty & Marc Klau, 2004. "Monetary policy rules in emerging market economies: issues and evidence," BIS Working Papers 149, Bank for International Settlements.
  17. Frederic Mishkin & Klaus Schmidt-Hebbel, 2002. "A Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 4, pages 171-220 Central Bank of Chile.
  18. 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. repec:idb:brikps:6828 is not listed on IDEAS
  22. 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.
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  24. 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.
  25. Piti Disyatat & Gabriele Galati, 2005. "The effectiveness of foreign exchange intervention in emerging market countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 97-113 Bank for International Settlements.
  26. Arminio Fraga & Ilan Goldfajn & Andre Minella, 2003. "Inflation Targeting in Emerging Market Economies," NBER Working Papers 10019, National Bureau of Economic Research, Inc.
  27. Grippa, Francisco & Gondo, Rocio, 2006. "Intervenciones cambiarias," Revista Moneda, Banco Central de Reserva del Perú, issue 133, pages 5-12.
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