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Chapter 1: Monetary policy and macroeconomic stability in Latin America: The cases of Brazil, Chile, Colombia and Mexico
Luiz de Mello and Diego Moccero use a conventional New Keynesian model to empirically test whether adoption of IT in a flexible exchange rate regime after 1999 has affected macroeconomic volatility in four Latin American countries (Brazil, Chile, Mexico and Colombia). The authors show that these monetary policy regime changes have been accompanied by lower volatility in the monetary stance in Brazil, Colombia and Mexico, despite higher inflation volatility in Brazil and Colombia. They also show that the post 1999 regime has been associated with greater responsiveness by the monetary authority to changes in expected inflation in Brazil and Chile, while in Colombia and Mexico monetary policy has become less counter cyclical. Also, lower interest rate volatility in the post 1999 period was found to owe more to a benign economic environment than to a change in the policy setting itself. Finally, the change in the monetary regime has not yet resulted in a reduction in output volatility in these countries.
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Additional information
Further information can be obtained from the Brazil, South America and Indonesia Desk at the OECD Economics Department at ECO.Contact@oecd.org
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