Monetary Policy Frameworks in Latin America: Evolution, Resilience and Future Challenges: A Discussion

This chapter provides an interesting and detailed narrative of the monetary policy frameworks (MPFs) that Latin American countries have implemented since the 1990s, studying their past performance and their response to the COVID-19 pandemic. The authors characterise accurately the history of high inflation and unsustainable fiscal and exchange rate policies that led to the widespread adoption of inflation targeting and flexible exchange rates in the region. They also narrate carefully how the frameworks evolved and responded to external conditions, particularly the waves of large capital inflows followed by Sudden Stop episodes, fluctuations in the terms of trade and a prolonged period of low global inflation and high liquidity. In particular, the authors discuss the introduction of financial stability considerations into the MPFs. In addition, they highlight important differences across countries or groups of countries in how they have been affected by external conditions and responded to shocks, particularly for countries that are commodity exporters vis-à-vis those that are exporters of manufactures. The authors conclude that overall, the MPFs have proven resilient in the face of these challenges and the ongoing COVID-19 pandemic…