Abstract
Many emerging market economies have adopted inflation target regimes since they were introduced by New Zealand. Latin America has not been the exception. Currently there are eight countries that conduct monetary policy through inflation target regimes. After reviewing the history of chronic inflation in Latin America, this article describes the experiences with inflation targets and the performance of these countries during the global financial crisis.
Prepared for the New Palgrave Dictionary of Economics. I thank Alejandro González for valuable research assistance.
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Notes
- 1.
The list of hyperinflations is taken from Fischer et al. (2002), who uses Cagan’s definition of hyperinflation as beginning when monthly inflation goes above 50% and end when it falls below 50% per month for at least 1 year. Chile had inflation above 50% the month of October of 1973. It is the only case reported before the debt crisis.
- 2.
Fear of floating refers to the unwillingness of authorities to allow the currency to depreciate, and facilitate adjustment, due to the fear of a financial crisis and the fear for rising inflation.
- 3.
The target can be defined by the central bank or the government. In the latter case, the government mandates the central bank to achieve the target through its monetary policy.
- 4.
Mishkin and Schmidt-Hebbel (2007) introduced this distinction to classify IT regimes.
- 5.
Given the autocorrelation process of inflation, there is a one-to-one relationship between the tolerance range and the time horizon (De Gregorio 2007).
- 6.
For the rest of this section, the focus is on the largest Latin American following inflation targets, namely, Brazil, Chile, Colombia, Peru, and Mexico.
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De Gregorio, J. (2019). Inflation Targets in Latin America. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_3110-1
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