Regional inflation spillovers and monetary policy design

Jose Aguilar and Ricardo Quineche

Journal of Policy Modeling, 2026, vol. 48, issue 2, 468-488

Abstract: Should emerging market central banks anchor inflation targeting to capital cities or national aggregates? Peru's Central Reserve Bank has achieved Latin America's lowest inflation (2.96 % average annual between 2001 and 2024) using Lima's CPI—an uncommon choice raising equity concerns. Using frequency-domain spillover analysis on monthly data (2002–2024) across nine regions, we find Lima dominates long-run transmission (NET: 27.23 pp) but absorbs short-run agricultural shocks. We recommend maintaining Lima-centered targeting while integrating upstream food-region signals into forecasts and developing crisis-adaptive frameworks. These findings validate Peru's approach and provide actionable guidance for spatially heterogeneous inflation-targeting economies.

Keywords: Inflation targeting; Regional spillovers; Monetary policy design; Emerging markets (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 E58 (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0161893825001322
Full text for ScienceDirect subscribers only

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:eee:jpolmo:v:48:y:2026:i:2:p:468-488

DOI: 10.1016/j.jpolmod.2025.10.003

Access Statistics for this article

Journal of Policy Modeling is currently edited by A. M. Costa

More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().