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Monetary Policy and Macroeconomic Stability in Latin America: The Cases of Brazil, Chile, Colombia and Mexico

Author

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  • Luiz de Mello
  • Diego Moccero
Abstract
In 1999, new monetary policy regimes were adopted in Brazil, Chile, Colombia and Mexico, combining inflation targeting with floating exchange rates. These regime changes have been accompanied by lower volatility in the monetary stance in Brazil, Colombia and Mexico, despite higher inflation volatility in Brazil and Colombia. This paper estimates a conventional New Keynesian model for these four countries and shows that: i) the post-1999 regime has been associated with greater responsiveness by the monetary authority to changes in expected inflation in Brazil and Chile, while in Colombia and Mexico monetary policy has become less counter-cyclical, ii) lower interest-rate volatility in the post-1999 period owes more to a benign economic environment than to a change in the policy setting, and iii) the change in the monetary regime has not yet resulted in a reduction in output volatility in these countries. Politique monétaire et stabilité macroéconomique en Amérique latine : Brésil, Chili, Colombie et Mexique De nouveaux régimes monétaires ont été adoptés par le Brésil, le Chili, la Colombie et le Mexique en 1999. Basés sur le ciblage de l’inflation et des taux de change flottants, ces régimes ont été accompagnés d’une réduction de la volatilité de la politique monétaire au Brésil, en Colombie et au Mexique, en dépit de l’augmentation de la volatilité de l’inflation au Brésil et en Colombie. Ce document estime un modèle conventionnel du type « New Keynesian » pour ces quatre pays et démontre que: i) les autorités monétaires ont réagi plus fortement aux changements des expectatives d’inflation à partir de 1999 au Brésil et au Chili, tandis que la politique monétaire est devenue moins contre-cyclique en Colombie et au Mexique, ii) la réduction de la volatilité du taux d’intérêt à partir de 1999 est due à un environnement économique plus favorable plutôt qu’à l’adoption d’un nouveau régime monétaire, et iii) le changement du régime monétaire n’a pas encore conduit à une réduction de la volatilité de l’activité en ces pays.

Suggested Citation

  • Luiz de Mello & Diego Moccero, 2007. "Monetary Policy and Macroeconomic Stability in Latin America: The Cases of Brazil, Chile, Colombia and Mexico," OECD Economics Department Working Papers 545, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:545-en
    DOI: 10.1787/285851107845
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    References listed on IDEAS

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    More about this item

    Keywords

    analyse contrefactuelle; Brazil; Brésil; Chile; Chili; cible d'inflation; Colombia; Colombie; counterfactual analysis; fonction impulse-réponse; impulse response function; inflation target; Mexico; Mexique; modèle structurel; structural model;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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