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Inflation targeting has been adopted in a set of emerging economies, including eight countries in Latin America. The success of this regime may depend critically on the credibility of the target and the expectation that the authorities will take appropriate actions if the target is breached. This paper exploits a database of inflation expectations and attempts to measure whether, for a set of inflation targeters in Latin America, expectations are well anchored. A tighter anchoring of expectations is interpreted as a gain in credibility. Also considered are the effects on the credibility of the regime if the inflation target is breached. The results indicate that while inflation expectations have not been fully anchored over the whole sample period, credibility has risen, but at the same time the cost of breaching the target has grown.
After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. This paper examines the experience of the Colombian Ce ... (View publication)
Financial liberalization has not lived up to expectations, at least as far as interest rate spreads are concerned. Over the past decade, many countries in Latin America and the Caribbean have reformed their financial sectors and reaped major economic benefits as a result. However, the persistence of high interest rate spreads -the difference between the interest charged to borrowers and the rate p ... (View publication)
This paper seeks to identify the main determinants of the formation of inflation expectations in Paraguay since the adoption of the inflation targeting regime. This work bases the analysis on the results obtained from the expectations surveys conducted by the country’s monetary authority. Likewise, it is important to note that the dispersion of respondents’' answers was adjusted within the inf ... (View publication)
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