Disinflation in Chile, Colombia and Mexico: Do Domestic Monetary Policy Changes Deserve Credit?

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William Miles


This paper examines inflation in three Latin American nations. All of thenations have experienced higher-than-desired inflation in years past, and all have seen apalpable decrease in inflation in recent decades. We thus test for structural change in thedynamics of inflation. We find that all three have undergone some significant break in themean or persistence of price changes. The break dates, however, do not generallycorrespond closely to any highly publicized changes in monetary policy such as inflationtargeting or central bank independence. This finding contradicts some previous studieswhich purport to find a large effect of certain policies-formal targets, central bankindependence, etc.-on inflation. Indeed further examination suggests some credit fordisinflation should go to external factors. This is somewhat worrisome, as it indicates thata change to a more volatile global macroeconomic environment could make it costly foremerging markets to maintain price stability. (E31, O11)

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