New Frontiers for Monetary Policy in Chile

Pablo S. García, Luis Oscar Herrera and Rodrigo Valdés

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper assesses the efficiency of the current Inflation Targeting (IT) scheme in place at the Central Bank of Chile. Using a small macroeconomic model of the Chilean economy, our main results are as follows: (i) an efficient monetary policy requires a bias towards output stabilization around its long run trend; (ii) the switch to forecast-targeting, implicit in the current IT scheme in Chile, results in an efficiency gain; (iii) targeting core inflation is not efficient; (iv) ceteris paribus, efficiency could be enhanced if monetary policy leans against the wind when facing shocks to the cost of international finance.

Date: 2001-11
New Economics Papers: this item is included in nep-cba, nep-mon and nep-pke
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Chapter: New Frontiers for Monetary Policy in Chile (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:125

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