Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience*

doi:10.1111/j.1468-2362.2005.00169.x

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Wiley InterScience

International Finance

Volume 8 Issue 3, Pages 545 - 575

Published Online: 21 Dec 2005

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Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience^*

Luis F. Céspedes ^† and Claudio Soto ^†

^† Research Department, Central Bank of Chile csoto@bcentral.cl.

Correspondence to Claudio Soto
Research Department
Central Bank of Chile
Agustinas 1180
Santiago
Chile

^*This paper was prepared for the conference on 'New Policy Thinking in Macroeconomics' at the Council on Foreign Relations in New York. The authors are grateful to Mick Devereux, Fabio Ghironi, Benn Steil, Raimundo Soto, an anonymous referee and seminar participants at University of Chile and Catholic University for helpful comments and suggestions. The views expressed here are those of the authors and do not necessarily reflect those of the Central Bank of Chile.

Abstract

This paper assesses the challenges that the lack of credibility poses for the implementation of inflation targeting, and for the design of inflation stabilization processes in emerging market economies. We also discuss the role that credibility has played in rationalizing the main elements of the disinflationary process in Chile during the 1990s and in explaining the grounds behind the monetary policy framework's changes in Chile at the end of the last decade.

DIGITAL OBJECT IDENTIFIER (DOI)

10.1111/j.1468-2362.2005.00169.x About DOI