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.

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.

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.

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.