On the Credibility of Inflation Targeting Regimes in Latin America

26 Pages Posted: 3 Feb 2015

See all articles by Rodrigo Mariscal

Rodrigo Mariscal

El Colegio de Mexico; Mexico's Ministry of Finance

Andrew Powell

Inter-American Development Bank (IDB); Universidad Torcuato Di Tella - School of Business; Harvard University - Center for International Development (CID)

Pilar Tavella

Inter-American Development Bank (IDB)

Date Written: August 2014

Abstract

Inflation targeting has been adopted in a set of emerging economies, including eight countries in Latin America. The success of this regime may depend critically on the credibility of the target and the expectation that the authorities will take appropriate actions if the target is breached. This paper exploits a database of inflation expectations and attempts to measure whether, for a set of inflation targeters in Latin America, expectations are well anchored. A tighter anchoring of expectations is interpreted as a gain in credibility. Also considered are the effects on the credibility of the regime if the inflation target is breached. The results indicate that while inflation expectations have not been fully anchored over the whole sample period, credibility has risen, but at the same time the cost of breaching the target has grown.

Keywords: Inflation, Expectations, Inflation Targeting, Credibility, Latin America

JEL Classification: E31, E42, E58, O54

Suggested Citation

Mariscal, Rodrigo and Powell, Andrew P. and Powell, Andrew P. and Tavella, Pilar, On the Credibility of Inflation Targeting Regimes in Latin America (August 2014). IDB Working Paper No. IDB-WP-504, Available at SSRN: https://ssrn.com/abstract=2559635 or http://dx.doi.org/10.2139/ssrn.2559635

Rodrigo Mariscal (Contact Author)

El Colegio de Mexico ( email )

Camino al Ajusco 20
Col. Pedregal de Santa Teresa
Mexico, City, 10740
Mexico

HOME PAGE: http://www.colmex.mx/

Mexico's Ministry of Finance ( email )

Av. Insurgentes Sur No. 1971
Torre III, Piso 9
Mexico City, CDMX 01020
Mexico

Andrew P. Powell

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina
+5411 4787-9349 (Phone)
+5411 4783-3220 (Fax)

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Pilar Tavella

Inter-American Development Bank (IDB)

1300 New York Avenue NW
Washington, DC 20577
United States

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