Inflation Dynamics and Monetary Policy in Bolivia

Alejandro Guerson

No 2015/266, IMF Working Papers from International Monetary Fund

Abstract: This paper explores inflation dynamics and monetary policy in Bolivia. Bolivia’s monetary policy framework has been effective in stabilizing inflation in recent times. This has been a challenging task given high price volatility of key consumer goods subject to recurrent supply shocks, especially food items. Empirical testing indicates that the monetary policy framework has contributed to the stabilization of inflation, with effective transmission through the bank lending channel, while the defacto dollar peg has also played a role. Looking ahead, the current framework will be tested by the new commodity price normal and a potentially permanent adjustment in relative prices. Against this background, consideration could be given to a more flexible exchange rate policy arrangement, with short term interest rates as the main policy instrument.

Keywords: WP; central bank; central bank intervention; nominal exchange rate; central bank reaction; Inflation; monetary policy; exchange rate flexibility; Exchange rate peg; Bolivia; inflation expectation; price level; contractionary central bank response; monetary policy transmission; central bank open market operations instrument; open market operations instrument; central bank flow intervention; central bank narrative; inflation pressure; open market operation bill; reaction to an increase; Open market operations; Bank credit; Monetary policy instruments; Exchange rates; Global (search for similar items in EconPapers)
Pages: 24
Date: 2015-12-18
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Citations: View citations in EconPapers (1)

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