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Assessing Inflation Targeting in Latin America With a DSGE Model

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Author Info
John McDermott
Peter McMenamin
Abstract

In this paper we assess Inflation Targeting with a unique treatment and control group of strictly Latin American countries. We estimate a small Dynamic Stochastic General Equilibrium model to determine whether economic behavior within an economy fundamentally changes under Inflation Targeting. We find that although Inflation Targeting central banks appear to be if anything, slightly more aggressive in responding to inflation than Non-Inflation Targeting central banks, this has not resulted in more forward looking inflation expectations by economic agents.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 469.

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Date of creation: May 2008
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Handle: RePEc:chb:bcchwp:469

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  1. Stephen G. Cecchetti & Michael Ehrmann, 1999. "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers' Preferences and Outcomes," NBER Working Papers 7426, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Marco Vega & Diego Winkelried, 2005. "Inflation Targeting and Inflation Behavior: A Successful Story?," Macroeconomics 0502026, EconWPA. [Downloadable!]
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  3. Stanley Fischer & Ratna Sahay & Carlos A. Vegh, 2002. "Modern Hyper- and High Inflations," NBER Working Papers 8930, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Martin Cerisola & R. Gaston Gelos, 2005. "What Drives Inflation Expectations in Brazil? An Empirical Analysis," IMF Working Papers 05/109, International Monetary Fund. [Downloadable!]
  5. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2006. "Has Monetary Policy become more Efficient? a Cross-Country Analysis," Economic Journal, Royal Economic Society, vol. 116(511), pages 408-433, 04. [Downloadable!] (restricted)
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  6. Reinhart, Carmen & Savastano, Miguel, 2003. "The Realities of Modern Hyperinflation," MPRA Paper 7578, University Library of Munich, Germany. [Downloadable!]
  7. Thomas Lubik & Frank Schorfheide, 2005. "A Bayesian Look at New Open Economy Macroeconomics," Economics Working Paper Archive 521, The Johns Hopkins University,Department of Economics. [Downloadable!]
  8. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09. [Downloadable!] (restricted)
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  9. Catao, Luis A.V. & Terrones, Marco E., 2005. "Fiscal deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 529-554, April. [Downloadable!] (restricted)
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  10. Luis F. Céspedes & Claudio Soto, 2005. "Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience," International Finance, Blackwell Publishing, vol. 8(3), pages 545-575, December. [Downloadable!] (restricted)
  11. Claudio Soto & Luis F. Céspedes, 2006. "Credibility and Inflation Targeting in Chile," Working Papers Central Bank of Chile 408, Central Bank of Chile. [Downloadable!]
  12. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
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