Is Inflation Targeting destabilizing? Lessons from Latin America

Bibliographic Data

ID11123601
AuthorsEva Libman (0000-0001-7126-479X, Centre for the Study of State and Society, Argentina, corresponding author)
Year2022
Volume42
Issue2
Pages304-326
Publication date2022-04-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueBrazilian Journal of Political Economy (JOURNAL)
Journal identifiersISSN: 0101-3157 • E-ISSN: 1809-4538
PublisherFapUNIFESP (SciELO) (PUBLISHER)
DOI10.1590/0101-31572022-3075
OpenAlexW4229060410
SCIELO_PIDS0101-31572022000200304
LanguageEN
Citations received1
References cited33

This paper argues that several aspects of the productive structure and the macroeconomic policies of Latin American countries, when combined with a Taylor Rule, may produce too much output volatility and a bias towards real exchange rate overvaluation. Relaying on a simple Aggregate Demand - Aggregate Supply model, we show that this is a likely outcome when: a) the real interest rate elasticity of demand is low; b) depreciations have strong contractionary effects; and c) the exchange rate pass-through is relatively large. These conditions imply that depreciations are contractionary and a have a strong effect on inflation

Aggregate demand · Aggregate supply · Central bank · Econometrics · Economics · Exchange rate · Inflation (cosmology · Inflation targeting · Interest rate · Latin Americans · Macroeconomics · Monetary economics · Monetary policy · Taylor rule · Volatility (finance · Economic Theory and Policy · Global Financial Crisis and Policies · Monetary Policy and Economic Impact

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