Is Inflation Targeting Still on Target?

68 Pages Posted: 30 Nov 2012 Last revised: 29 Mar 2021

See all articles by Luis Felipe Cespedes

Luis Felipe Cespedes

International Monetary Fund (IMF)

Roberto Chang

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics; National Bureau of Economic Research (NBER)

Andrés Velasco

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: November 2012

Abstract

This paper reviews the recent experience of a half-dozen Latin American inflation-targeting (IT) nations. We document repeated and large deviations from the standard IT framework: exchange market interventions have been lasting and widespread; the real exchange rate has often become a target of policy, though this target is seldom made explicit; a range of other non-conventional policy tools, especially changes in reserve requirements but occasionally also taxes or restrictions on international capital movements, also came into common use. As in developed nations, during the 2008-2009 crisis issues of liquidity provision took center stage. We also attempt a first evaluation of the emerging modified framework of monetary policy. In general terms, the new approach seems to have been effective, at the very least since the region weathered the crisis reasonably well. But also, and perhaps more importantly, many questions remain about the desirability of non-conventional monetary policies in Latin America.

Suggested Citation

Cespedes, Luis Felipe and Chang, Roberto and Velasco, Andrés, Is Inflation Targeting Still on Target? (November 2012). NBER Working Paper No. w18570, Available at SSRN: https://ssrn.com/abstract=2183031

Luis Felipe Cespedes (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Roberto Chang

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrés Velasco

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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