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Estabilidad de Precios en América Latina:¿Ya LLegamos Allí?
[Price Stability in Latin America: Are We There Yet?]

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  • Olivo, Victor

Abstract

This paper main purpose is to analyze whether Latin America economies as a whole and on an individual basis have achieved price stability, or are moving towards this objective. After a revision of the literature on the quantitative definition of price stability, I adopt the one that has prevailed in most central banks worldwide: an inflation rate of 2% within a range between 1-3%. Comparing observed inflation and a three-year moving average of the inflation rate of Latin American countries with this benchmark, I conclude that the region has attained a low inflation but not price stability. The paper goes on to examine several factors that decrease the benefits and increase the cost of lowering inflation once this has been reduced below 10%. It also evaluates how the monetary policy strategies adopted throughout the region have influenced the achievement of price stability. I conclude that the region should avoid complacency. In a globalized world in which nations compete intensively in international trade and to attract capital flows, the achievement of the price stability objective added to others institutional reforms, could be fundamental.

Suggested Citation

  • Olivo, Victor, 2016. "Estabilidad de Precios en América Latina:¿Ya LLegamos Allí? [Price Stability in Latin America: Are We There Yet?]," MPRA Paper 76067, University Library of Munich, Germany, revised 02 Jan 2017.
    • Handle: RePEc:pra:mprapa:76067
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    References listed on IDEAS

    as
    1. Marvin Goodfriend & Robert G. King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296, National Bureau of Economic Research, Inc.
    2. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
    3. Fernandez Valdovinos, Carlos G., 2003. "Inflation and economic growth in the long run," Economics Letters, Elsevier, vol. 80(2), pages 167-173, August.
    4. Reynard, Samuel, 2007. "Maintaining low inflation: Money, interest rates, and policy stance," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1441-1471, July.
    5. Buiter, Willem H., 2006. "The elusive welfare economics of price stability as a monetary policy objective: why New Keynesian central bankers should validate core inflation," Working Paper Series 609, European Central Bank.
    6. von Hagen, J, 1995. "Inflation and Monetary Targeting in Germany," Papers 03, American Institute for Contemporary German Studies-.
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    More about this item

    Keywords

    Keywords: price stability; inflation rate; central banks; monetary policy; interest rate; monetary base.;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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