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What do Latin American inflation targeters care about? A comparative Bayesian estimation of central bank preferences

Stephen McKnight, Alexander Mihailov () and Antonio Pompa Rangel ()
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Antonio Pompa Rangel: Banco de México

Serie documentos de trabajo del Centro de Estudios Económicos from El Colegio de México, Centro de Estudios Económicos

Abstract: This paper uses Bayesian estimation techniques to uncover the central bank preferences of the big five Latin American inflation targeting countries: Brazil, Chile, Colombia, Mexico, and Peru. The target weights of each central bank.s loss function are estimated using a medium-scale small open economy New Keynesian model with incomplete international asset markets and imperfect exchange-rate pass-through. Our results suggest that all central banks in the region place a high priority on stabilizing in.ation and interest rate smoothing. While stabilizing the real exchange rate is a concern for all countries except Brazil, only Mexico is found to assign considerable weight to reducing real exchange rate .uctuations. Overall, Brazil, Colombia, and Peru show evidence of implementing a strict inflation targeting policy, whereas Chile and Mexico follow a more flexible policy by placing a sizeable weight to output gap stabilization. Finally, the posterior distributions for the central bank preference parameters are found to be strikingly di¤erent under complete asset markets. This highlights the sensitivity of Bayesian estimation, particularly when uncovering central bank preferences, to alternative international asset market structures.

Keywords: Bayesian estimation; central bank preferences; inflation targeting; Latin Amer- ica; small open economies; incomplete asset markets; monetary policy (search for similar items in EconPapers)
JEL-codes: C51 E52 F41 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-cba, nep-lam, nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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https://cee.colmex.mx/dts/2016/DT-2016-8.pdf (application/pdf)

Related works:
Journal Article: What do Latin American inflation targeters care about? A comparative Bayesian estimation of central bank preferences (2020) Downloads
Working Paper: What Do Latin American Inflation Targeters Care About? A Comparative Bayesian Estimation of Central Bank Preferences (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:emx:ceedoc:2016-08

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