Monetary policy and macroeconomic stability in Latin America: The cases of Brazil, Chile, Colombia and Mexico

Abstract

JEL classification: C15 C22 E52 O52 Keywords: Brazil Chile Colombia Mexico Inflation targeting Structural model Impulse response functions Counterfactual analysis a b s t r a c tIn 1999, new monetary policy regimes were adopted in Brazil, Chile, Colombia and Mexico, combining inflation targeting with floating exchange rates. These regime changes have been accompanied by lower volatility in the monetary stance in Brazil, Colombia and Mexico, despite higher inflation volatility in Brazil and Colombia. This paper estimates a conventional New Keynesian model for these four countries and shows that: i) the post-1999 regime has been associated with greater responsiveness by the monetary authority to changes in expected inflation in Brazil and Chile, while in Colombia and Mexico monetary policy has become less counter-cyclical, ii) lower interest-rate volatility in the post-1999 period owes more to a benign economic environment than to a change in the policy setting, and iii) the change in the monetary regime has not yet resulted in a reduction in output volatility in these countries.

The open economy trilemma in Latin America: A three‐decade analysis

“…As pointed out by Mello and Moccero (2007), the literature does not provide sufficient evidence to confirm the relationship between inflation targeting and output volatility in emerging economies. In order to assess the effect of inflation targeting on output volatility beyond the estimation from the sample of non-inflation targeters (Tables 1 and A9), the models are re-estimated with the inclusion of a dummy variable (IT) that assumes a value equal to '1' if country i is an inflation targeter in period t and '0' otherwise.…”

Central Bank Policies in Mexico: Targets, Instruments, and Performance

“…Galindo and Catalán (2009) also find a significant positive reaction of the interest rate to the real exchange rate. De Mello andMoccero (2008, cited by Aizenman et al, 2010) estimate interest rate policy rules for four Latin American emerging marketsBrazil, Chile, Colombia, and Mexico -characterized by inflation targeting and floating exchange rates and conclude that Mexico is the only country where changes in nominal exchange rates were found to be statistically significant in the central bank's reaction function during the inflation targeting period.…”

El esquema de objetivos de inflación: Evidencia para América Latina (1999-2015)

“…Diversos trabajos empíricos han analizado la gestión de la política monetaria llevada a cabo por los bancos centrales analizados en este trabajo (De Mello et al, 2009;Moura y Carvalho, 2010;Bernal y Táutiva, 2011;Mello y Moccero, 2011;Villa et al, 2014;entre otros). En concreto, De Mello et al (2009) estudian la posibilidad de que los bancos centrales de Brasil, Chile, Colombia y México hayan aplicado políticas monetarias asimétricas en la primera década del siglo XXI, aunque las asimetrías que estos autores plantean son asimetrías de tamaño.…”