Monetary policy in Latin America: Where are we going?
Christian Daude 10 December 2012
Latin American central banks are facing new challenges in the form of unprecedented levels of uncertainty and exchange rate appreciation pressures. This column, focusing on Brazil, Chile, Colombia, Peru and Mexico, argues that there is an overestimation of the potential output in several Latin American economies, a lack of an explicit policy direction from central banks, and lacklustre frameworks for macroprudential policy. Although inflation targeting has served countries in Latin America well, significant risks remain.
Inflation targeting has served countries in Latin America well . They have achieved macroeconomic stability by reducing inflation and the pass-through of external shocks such as oil price and exchange rate fluctuations (cf. Mishkin and Schmidt-Hebbel 2007).
Macroeconomic policy Monetary policy
inflation targeting, Latin America, Central Banks, foreign exchange, Brazil, Chile, Mexico, Colombia, Peru
Capital controls: A meta-analysis approach
Carmen M Reinhart, Kenneth Rogoff, Nicolas Magud 24 March 2011
Capital controls are back on the table. But the existing literature offers conflicting and sometimes confusing insights. This column provides a meta-analysis of 37 empirical studies with the aim of exposing some common ground. It finds that capital controls on inflows make monetary policy more independent, alter the composition of capital flows, reduce real-exchange-rate pressures, but they do not reduce the volume of net flows.
Academics, financial-market participants, and policymakers have once again demonstrated an interest in capital controls. In the present context, the discussion has largely focused on emerging markets’ measures to curb capital inflows and/or to skew their composition away from more volatile types of flows – including the carry trade and portfolio flows. Similar discussions (with far less approval from official circles) took place in the early 1990s, as many emerging markets faced a similar surge in capital inflows.
International finance Macroeconomic policy
capital controls, Chile, exchange-rate policy, Malaysia
Are capital controls effective?
Eduardo Levy Yeyati 20 January 2011
The global crisis has reignited debate on the desirability of capital controls. This column examines evidence from Argentina and Chile and argues that capital controls can be effective, but that their effectiveness and efficiency varies. It adds that controls need to be considered as part of a macro-prudential toolkit to prevent asset inflation and overvaluation that is costly to revert in the down cycle.
“Not only are they ineffective but, in addition, they raise domestic interest rates.” This type of internally inconsistent commentary is not unusual when discussing capital controls – a subject marked with strong beliefs and weak data. Now that the G20 has sanctioned capital controls in Seoul under the umbrella of macro-prudential policies, it is a good time to revisit the subject of controls in a dispassionate way (G20 2010).1
US, protectionism, capital controls, Chile, Argentina
Incentive effects of unemployment insurance savings accounts: Evidence from Chile
Gonzalo Reyes, Jan van Ours, Milan Vodopivec 09 February 2010
How can policymakers provide unemployment insurance while minimising adverse incentives? This column presents new evidence from Chile suggesting unemployment insurance savings accounts can increase job-finding rates. This provides a strong endorsement of the savings account component to reform traditional unemployment insurance programmes.
Unemployment insurance offers financial compensation to workers for income loss due to unemployment – providing they satisfy certain requirements. While such programmes usually provide solid protection against the hardship of job loss, the evidence shows that this protection is typically produced at a cost of increased disincentives to work. The unemployed search less intensely for a job than they would have in the absence of benefits and their reservation wage is higher, making them less likely to take a given job offer (Holmlund 1998 and Vodopivec 2004).
Unemployment insurance, Chile, savings accounts