Inflation Dynamics and Monetary Policy in Bolivia

25 Pages Posted: 17 Feb 2016

Date Written: December 2015

Abstract

This paper explores inflation dynamics and monetary policy in Bolivia. Bolivia's monetary policy framework has been effective in stabilizing inflation in recent times. This has been a challenging task given high price volatility of key consumer goods subject to recurrent supply shocks, especially food items. Empirical testing indicates that the monetary policy framework has contributed to the stabilization of inflation, with effective transmission through the bank lending channel, while the defacto dollar peg has also played a role. Looking ahead, the current framework will be tested by the new commodity price normal and a potentially permanent adjustment in relative prices. Against this background, consideration could be given to a more flexible exchange rate policy arrangement, with short term interest rates as the main policy instrument.

Keywords: Exchange rate peg, central bank, exchange rate, interest rates, foreign exchange, General, Bolivia.,

JEL Classification: F30, E30, E40, E50, F3

Suggested Citation

Guerson, Alejandro, Inflation Dynamics and Monetary Policy in Bolivia (December 2015). IMF Working Paper No. 15/266, Available at SSRN: https://ssrn.com/abstract=2733575

Alejandro Guerson (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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