Latin America's Nonlinear Monetary Response to Pandemic Inflation

Rafael Guerra, Steven B. Kamin, John Kearns, Christian Upper and Aatman Vakil

International Finance, 2025, vol. 28, issue 1, 2-22

Abstract: This paper estimates empirical Taylor rules to analyze the recent monetary policy of the five main Latin American inflation‐targeting central banks. We find that during the inflationary surge of 2021–2023, monetary policy reacted more strongly and more quickly to changes in inflation than predicted by a standard linear Taylor rule, estimated on data from the prepandemic period. Although this appears to represent a shift in the monetary reaction function, we think it more likely that Latin American central banks have been following a nonlinear strategy, responding more aggressively to inflation, the higher it rose. We confirmed this by adding the square of inflation to the Taylor rule model: its coefficient was positive and significant, indicating that policy interest rates exhibited a nonlinear response to inflation, even during the prepandemic period, and the model did a better job of predicting the sharp rise in interest rates during 2021–2023.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/infi.12457

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:intfin:v:28:y:2025:i:1:p:2-22

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1367-0271

Access Statistics for this article

International Finance is currently edited by Benn Steil

More articles in International Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().