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Latin American Central Bank Reform: Progress and Challenges

  • International Monetary Fund

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 risks for the success of monetary policy in Latin America.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/114.

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Length: 43
Date of creation: 01 Jun 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/114
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  1. 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.
  2. 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.
  3. 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.
  4. Luis Ignacio Jácome & Francisco F. Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean," IMF Working Papers 05/75, International Monetary Fund.
  5. Siklos,Pierre L., 2006. "The Changing Face of Central Banking," Cambridge Books, Cambridge University Press, number 9780521034494, October.
  6. 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.
  7. 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.
  8. 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.).
  9. 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.
  10. W. Wascher & Palle S. Andersen, 1999. "Sacrifice ratios and the conduct of monetary policy in conditions of low inflation," BIS Working Papers 82, Bank for International Settlements.
  11. Marc 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.
  12. 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.
  13. Manfred Gärtner, 1997. "Central Bank Independence and the Sacrifice Ratio: The Dark Side of the Force," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 133(III), pages 513-538, September.
  14. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4303, Inter-American Development Bank, Research Department.
  15. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346.
  16. Andreas Fischer, 1996. "Central bank independence and sacrifice ratios," Open Economies Review, Springer, vol. 7(1), pages 5-18, January.
  17. 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.
  18. 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.
  19. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
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