Central banking in Latin America: changes, achievements, challenges

Klaus Schmidt-Hebbel

No 1102, Occasional Papers from Banco de España

Abstract: Latin America's central banks were strengthened in the 1990s by independence laws, adoption of new policy regimes (foremost inflation targeting), and more transparent policy decisions bound by ex-ante rules and ex-post accountability. Central bank modernization - supported by significant fiscal adjustment and financial-sector strengthening - led most Latin American countries to converge to one-digit inflation rates and contributed to higher and more stable growth than in the past. Yet the region's new policy framework was put to severe testing by the global financial crisis and recession. Quick and innovative policy responses by the region's central banks helped domestic financial systems and the real economy to resist well the massive financial and real consequences of the banking crisis and recession in industrial countries. Empirical evidence reported here shows that the central banks' new policy framework and policy response during the crisis dampened significantly the amplitude of the recession. Having weathered well the global financial crisis and recession, now Latin America's central banks face a large array of policy challenges, which are reviewed in this lecture. Some are common to central banks in industrial and emerging economies, derived from the crisis itself and the issues it poses for improving the role of central banks in attaining more effectively both monetary and financial stability. Other challenges are idiosyncratic to emerging economies in the region (and elsewhere) that are facing renewed growth, high commodity prices, large capital inflows, and real exchange-rate appreciation.

Keywords: Monetary Policy; Central Banks; Latin America (search for similar items in EconPapers)
JEL-codes: E52 E58 O54 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2011-05
New Economics Papers: this item is included in nep-cba, nep-his, nep-lam, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published also in Spanish, with the same number.

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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:1102

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