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Inflation Targeting and Inflation Risk in Latin America

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  • Bruno Ferreira Frascaroli
  • Wellington Charles Lacerda Nobrega

Abstract

We analyzed the effects of inflation targeting (IT) implementation and functioning through the reaction function of monetary authorities from Latin American (LA) inflation targeters (ITers), e.g. Brazil, Chile, Colombia, Mexico, and Peru. We adapted the Value-at-Risk (VaR) and CoVaR to the Inflation-at-Risk ($$IaR$$IaR) and Co-Inflation-at-Risk ($$CoIaR$$CoIaR), respectively, to estimate the inflation at the extremes of its probability density functions. The results suggested that the IT was able to reduce inflation risk for all ITers. Chile and Peru are further ahead in terms of inflationary control, whereas in Brazil, it is more difficult. We propose the IaR and CoIaR as additional risk-management tools.

Suggested Citation

  • Bruno Ferreira Frascaroli & Wellington Charles Lacerda Nobrega, 2019. "Inflation Targeting and Inflation Risk in Latin America," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(11), pages 2389-2408, September.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:11:p:2389-2408
    DOI: 10.1080/1540496X.2018.1514297
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    2. Kondoz, Mehmet & Kirikkaleli, Dervis & Athari, Seyed Alireza, 2021. "Time-frequency dependencies of financial and economic risks in South American countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 170-181.
    3. Ryan Niladri Banerjee & Juan Contreras & Aaron Mehrotra & Fabrizio Zampolli, 2020. "Inflation at risk in advanced and emerging economies," BIS Working Papers 883, Bank for International Settlements.
    4. Svetlana Zenchenko & Wadim Strielkowski & Luboš Smutka & Tomáš Vacek & Yana Radyukova & Vladislav Sutyagin, 2022. "Monetization of the Economies as a Priority of the New Monetary Policy in the Face of Economic Sanctions," JRFM, MDPI, vol. 15(3), pages 1-18, March.
    5. Jarko Fidrmuc & Katarína Danišková, 2020. "Meta-Analysis of the New Keynesian Phillips Curve in Developed and Emerging Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(1), pages 10-31, January.

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