Monetary Authority

Monetary policy in Latin America helps to attenuate the crisis or generates new problems? Buenos Aires, Argentina on March 2, 2009 until the outbreak of the monetary crisis occupied a central role in the control of the dynamics both inflation and economic growth. Monetary policy of inflation targeting had expanded with great success and increasingly more countries embraced. In Latin America, the majority of central banks apply a monetary policy of inflation targeting, where the Central Bank of Chile has been pioneering. They also apply this type of monetary policy in Brazil, Mexico, Peru and Colombia, among the major economies of the region. Argentina, which is another of the major economies of the region, applying a monetary policy based on monetary aggregates as intermediate goal, justified in the weakness of the transmission channels of monetary policy that does not allow other type of strategy.

Monetary policy’s goals of inflation, which consists, broadly speaking, to announce a target level of inflation which will seek to be reached by the Monetary Authority, has been of great utility in Latin America to restore the credibility of the central bankers. The region’s history of high inflation levels with a few hiperinflacionarios episodes has generated the need to rebuild credibility. However, the crisis has generated an unexpected phenomenon for central bankers not only in developed countries, but also in Latin America: the impact of monetary policy to control the inflationary dynamics and reduce the impact of the crisis has been minimal. This phenomenon has been observed both in developed economies such as those in development in general and in the Latin American economies in particular. The explanation for the low incidence of monetary policy on inflation control and economic stimulus is in the magnitude of external shocks that affected economies. So by for example, central bankers could do little to curb the inflationary acceleration against the rise in international prices for energy and agricultural commodities so that in the midst of the crisis, the economies experienced inflation levels not seen for several years.

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