IDEAS home Printed from https://ideas.repec.org/a/chb/bcchec/v6y2003i2p5-35.html
   My bibliography  Save this article

Monetary Policy Nominalization in Chile: an Evaluation

Author

Listed:
  • R. Fuentes S.
  • A. Jara R.
  • K. Schmidt-Hebbel D.
  • M. Tapia G.

Abstract

In August of 2001, the Central Bank of Chile modified its main monetary policy instrument, the inflation-indexed monetary policy interest rate MPR it had used so far, to a nominal or peso-denominated rate. A number of consequences, both in the conduct of monetary policy and in the country’s financial markets, can be associated to this new way of taking monetary policy actions. This article evaluates such effects, providing theoretical support and evidence to several hypotheses, some of them found in the existing literature. The main contribution of this so-called “nominalization”—that has not been discussed earlier—is that it extends the scope of operation of monetary policy, something that becomes important when both the interest rate and the inflation rate are low, as is the case today.

Suggested Citation

  • R. Fuentes S. & A. Jara R. & K. Schmidt-Hebbel D. & M. Tapia G., 2003. "Monetary Policy Nominalization in Chile: an Evaluation," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 6(2), pages 5-35, August.
    • Handle: RePEc:chb:bcchec:v:6:y:2003:i:2:p:5-35
    as

    Download full text from publisher

    File URL: https://si2.bcentral.cl/public/pdf/revista-economia/2003/ago/vol6n2ago20035_27.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Buiter, Willem H. & Panigirtzoglou, Nikolaos, 1999. "Liquidity Traps: How to Avoid Them and How to Escape Them," CEPR Discussion Papers 2203, C.E.P.R. Discussion Papers.
    2. Norman Loayza & Klaus Schmidt-Hebbel, 2002. "Monetary Policy Functions and Transmission Mechanisms: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.),Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 1, pages 001-020, Central Bank of Chile.
    3. Milton Friedman, 1971. "A Theoretical Framework for Monetary Analysis," NBER Books, National Bureau of Economic Research, Inc, number frie71-1.
    4. Francisco Rosende, 2002. "Introducción al Debate Acerca de los Efectos de la Nominalización de la Política Monetaria," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 39(117), pages 235-236.
    5. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
    6. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(2), pages 197-216.
    7. Rodrigo Fuentes & Alejandro Jara & Klaus Schmidt-Hebbel & Matías Tapia & Erika Arraño, 2003. "Efectos de la Nominalización de la Política Monetaria en Chile," Working Papers Central Bank of Chile 197, Central Bank of Chile.
    8. Juan Andrés Fontaine, 2002. "Consecuencias de la Nominalización de la Política Monetaria," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 39(117), pages 253-275.
    9. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pablo Pincheira & Mauricio Calani, 2010. "Communicational Bias in Monetary Policy: Can Words Forecast Deeds?," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2010), pages 103-152, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rodrigo Fuentes & Alejandro Jara & Klaus Schmidt-Hebbel & Matías Tapia & Erika Arraño, 2003. "Efectos de la Nominalización de la Política Monetaria en Chile," Working Papers Central Bank of Chile 197, Central Bank of Chile.
    2. Francisco Rosende R., 2004. "El marco teórico de la política monetaria," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 19(2), pages 85-117, December.
    3. Francisco Rosende, 2002. "La Nueva Síntesis Keynesiana: Análisis e Implicancias de Política Monetaria," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 39(117), pages 203-233.
    4. Kui-Wai Li, 2013. "The US monetary performance prior to the 2008 crisis," Applied Economics, Taylor & Francis Journals, vol. 45(24), pages 3450-3461, August.
    5. Orphanides, Athanasios & Williams, John C., 2008. "Learning, expectations formation, and the pitfalls of optimal control monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages 80-96, October.
    6. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    7. Coenen, Gunter & Wieland, Volker, 2003. "The zero-interest-rate bound and the role of the exchange rate for monetary policy in Japan," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1071-1101, July.
    8. Juan Pablo Medina & Claudio Soto, 2005. "Oil Shocks and Monetary Policy in an Estimated DSGE Model for a Small Open Economy," Working Papers Central Bank of Chile 353, Central Bank of Chile.
    9. M. Marzo, 2001. "Evaluating Monetary Policy Regimes: the Role of Nominal Rigidities," Working Papers 411, Dipartimento Scienze Economiche, Universita' di Bologna.
    10. Frauke Dobnik, 2013. "Long-run money demand in OECD countries: what role do common factors play?," Empirical Economics, Springer, vol. 45(1), pages 89-113, August.
    11. Jérôme Creel & Henri Sterdyniak, 1999. "La politique monétaire sans monnaie," Revue de l'OFCE, Programme National Persée, vol. 70(1), pages 111-153.
    12. C. A. E. Goodhart, 2009. "The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts," Economica, London School of Economics and Political Science, vol. 76(s1), pages 821-830, October.
    13. Frauke Dobnik, 2011. "OLong-run Money Demand in OECD Countries – Cross-Member Cointegration," Ruhr Economic Papers 0237, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    14. repec:fip:fedkrw:15-06 is not listed on IDEAS
    15. César Calderón & Roberto Duncan & Klaus Schmidt-Hebbel, 2004. "The role of credibility in the cyclical properties of macroeconomic policies in emerging economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(4), pages 613-633, December.
    16. Hunt, Benjamin & Laxton, Douglas, 2004. "The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan," National Institute Economic Review, National Institute of Economic and Social Research, vol. 187, pages 76-92, January.
    17. Günter Coenen & Volker W. Wieland, 2004. "Exchange-Rate Policy and the Zero Bound on Nominal Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 80-84, May.
    18. Frank Smets, 1997. "Financial-asset Prices and Monetary Policy: Theory and Evidence," RBA Annual Conference Volume (Discontinued), in: Philip Lowe (ed.),Monetary Policy and Inflation Targeting, Reserve Bank of Australia.
    19. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    20. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 983-1022, July.
    21. Stephen J. Turnovsky, 2011. "Stabilization Theory and Policy: 50 Years after the Phillips Curve," Economica, London School of Economics and Political Science, vol. 78(309), pages 67-88, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chb:bcchec:v:6:y:2003:i:2:p:5-35. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fredherick Sanllehi (email available below). General contact details of provider: https://edirc.repec.org/data/bccgvcl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.