Inflation Targeting in Latin America: Empirical Analysis Using GARCH Models
Bank of Spain
December 5, 2008
Banco de Espana Working Paper No. 0826
During the last years, a number of countries have adopted formal inflation targeting (IT) monetary policy frameworks in a context of global inflation moderation. This paper studies inflation dynamics in eight Latin American countries, some of which have adopted formal targets. We analyze possible benefits associated with IT in terms of lower inflation, inflation volatility and volatility persistence. To describe inflation dynamics and evaluate its impact, we use an unobserved components model, where each component can follow a GARCH type process. In general, the main findings of the empirical exercise show that the adoption of IT has been useful to reduce the inflation level and volatility in these countries.
Number of Pages in PDF File: 35
Keywords: Inflation targets, inflation uncertainty, GARCH, structural time series models
JEL Classification: C22, C51, E52working papers series
Date posted: December 8, 2008
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