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CEPAL Review

Cepal Review is the leading journal for the study of economic and social development issues in Latin America and the Caribbean. Edited by the Economic Commission for Latin America, each issue focuses on economic trends, industrialization, income distribution, technological development and monetary systems, as well as the implementation of economic reform and transfer of technology. Written in English and Spanish (Revista de la Cepal), each tri-annual issue offers approximately 12 studies and essays undertaken by authoritative experts or gathered from conference proceedings.

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Asymmetric monetary and exchange-rate policies in Latin American countries that use inflation targeting

In recent decades, Latin American countries have adopted more flexible exchange-rate regimes and set inflation targets. Several authors argue that some countries’ monetary and exchange-rate policies suffer from a procyclical bias, whereby central banks are reluctant to reduce interest rates when inflation falls, but are willing to increase them when inflation edges up. Therefore, the exchange rate tends to appreciate a lot and depreciate little. This paper analyses the asymmetry of the monetary and exchangerate policies of the five largest Latin American countries in which inflation targets are used: Brazil, Chile, Colombia, Mexico and Peru. Nonlinear econometric techniques are used to show that there is “fear of floating”, except possibly in Chile and Peru, and that the symptoms are more pronounced in Brazil and Mexico.

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