The Quest for Price Stability in Central America and the Dominican Republic
This paper addresses the question of why inflation has not yet converged to price stability in Central America and the Dominican Republic and is currently relatively high by Latin American standards. It suggests that despite the institutional strengthening of monetary policy, important flaws remain in most central banks, in particular a lack of a clear policy mandate and little political autonomy, which are adversely affecting the consistency of policy implementation. Empirical analysis reveals that all central banks raise interest rates to curtail inflation but only some of them increase it sufficiently to effectively tackle inflation pressures. It also shows that some central banks care simultaneously about exchange rate stability. The potential policy conflict arising from a dual central bank mandate and the unpredictable policy response is probably undermining markets' confidence in central banks' commitment to price stability, thereby perpetuating an inflation bias.
|Date of creation:||01 Mar 2007|
|Date of revision:|
|Contact details of provider:|| Postal: International Monetary Fund, Washington, DC USA|
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cukierman Alex, 1992.
"Central Bank Strategy, Credibility, And Independance: Theory And Evidence,"
Journal des Economistes et des Etudes Humaines,
De Gruyter, vol. 3(4), pages 10, December.
- 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.
- Eric Parrado, 2004. "Singapore's Unique Monetary Policy; How Does it Work?," IMF Working Papers 04/10, International Monetary Fund.
- Barry Eichengreen, 2002.
"Can Emerging Markets Float? Should They Inflation Target?,"
Working Papers Series
36, Central Bank of Brazil, Research Department.
- Barry Eichengreen, 2006. "Can Emerging Markets Float? Should They Inflation Target?," Chapters, in: Monetary Integration and Dollarization, chapter 8 Edward Elgar Publishing.
- Luis Jácome & Francisco Vázquez, 2005.
"Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean,"
- Luis Ignacio JÃ¡come & Francisco F. Vazquez, 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.
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
- Guillermo A. Calvo & Carmen M. Reinhart, 2002.
"Fear of Floating,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 117(2), pages 379-408.
- Markus Rodlauer & Alfred Schipke, 2005. "Central America; Global Integration and Regional Cooperation," IMF Occasional Papers 243, International Monetary Fund.
- Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:07/54. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow)or (Hassan Zaidi)
If references are entirely missing, you can add them using this form.