Monetary Policy Strategies for Latin America
The authors examine possible monetary policy strategies for Latin America that may help lock in the gains the region attained in the fight against inflation in the 1990s. Instead of focusing the debate about the conduct of monetary policy on whethe...
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/10/1614835/monetary-policy-strategies-latin-america http://hdl.handle.net/10986/19530 |
| Summary: | The authors examine possible monetary
policy strategies for Latin America that may help lock in
the gains the region attained in the fight against inflation
in the 1990s. Instead of focusing the debate about the
conduct of monetary policy on whether the nominal exchange
rate should be fixed or flexible, the focus should be on
whether the monetary policy regime appropriately constrains
discretion in monetary policymaking. Three basic frameworks
deserve serious discussion as possible long-run strategies
for monetary policy in Latin America. The authors examine
the advantages and disadvantages of a hard exchange-rate
peg, monetary targeting, and inflation targeting, in light
of monetary policy's recent track record in several
Latin American countries, looking for clues about which of
the strategies might be best suited to economies in the
region. The answer: It depends on the country's
institutional environment. Some countries appear not to have
the institutions to constrain monetary policy if discretion
is allowed. In those countries, there is a strong argument
for hard pegs, including full dollarization, that allow
little or no discretion to monetary authorities. In
countries such as Chile, which can constrain discretion,
inflation targeting is likely to produce a monetary policy
that keeps inflation low yet appropriately copes with
domestic and foreign shocks. Monetary targeting as a
strategy for Latin America is not viable because of the
likely instability of the relationship between inflation and
monetary aggregates, of which there is ample international
evidence. No monetary strategy can solve the basic problems
that have existed in Latin American economies for a long
time. The authors welcome the recent move in Latin American
countries toward inflation targeting, but say no policy will
succeed unless government policies also create the right
institutional environment. |
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