Existing empirical studies have mainly focused on determinants of average investment levels. Instead, we investigate episodes of accelerated capital stock growth having a duration of eight years or longer. We find that episodes are relatively common, even in low-growth regions, but more so in middle-income and Asian countries. After identifying 175 episodes between 1950 and 2014, we employ probit analysis to explore their characteristics. Turning points in investment tend to be preceded by macroeconomic stability, real exchange rate undervaluation, and net capital outflows (especially portfolio outflows). We also find a negative correlation with the capital to output ratio and per capita GDP, and a positive correlation with a human capital index. Investment surges tend to be associated with changes in the trade balance and, to a (statistically) weaker extent, with structural change.
Política monetaria y cambiaria asimétrica en países latinoamericanos que usan metas de inflación Emiliano LibmanResumen En los últimos decenios, en los países de América Latina se han adoptado regímenes cambiarios más flexibles y se han fijado metas de inflación. Varios autores sostienen que la política monetaria y cambiaria de algunos países adolece de un sesgo procíclico en virtud del cual los bancos centrales son reacios a reducir las tasas de interés cuando se desacelera la inflación, pero están dispuestos a aumentarlas cuando esta aumenta. Por consiguiente, el tipo de cambio tiende a apreciarse mucho y depreciarse poco. En este documento se analiza la asimetría de la política monetaria y cambiaria de los cinco países más grandes de América Latina en que se usan metas de inflación: Brasil, Chile, Colombia, México y Perú. Se utilizan técnicas econométricas no lineales para mostrar que, salvo posiblemente en Chile y el Perú, existe "miedo a flotar", y que los síntomas son más pronunciados en el Brasil y México. Palabras clavePolítica monetaria, tipos de cambio, inflación, modelos econométricos, estudios de caso, América Latina, Brasil, Chile, Colombia, México, Perú Clasificación JEL E58, F30, F43Autor Emiliano Libman es Investigador del Centro de Investigaciones Macroeconómicas para el Desarrollo (CIMaD) y Docente de Macroeconomía Superior en la Escuela de Economía y Negocios de la Universidad Nacional de San Martín, Argentina. Correo electrónico: emilianolibman@gmail.com.Cuando se satisface el principio de Taylor, las expectativas inflacionarias quedan ancladas a la meta de inflación. Además, si no hay fricciones reales, estabilizar la inflación también trae como consecuencia estabilizar la brecha del producto. Esta es la coincidencia divina que mencionan Blanchard y Gali (2007).
During the last decades, the number of countries that adopted more flexible exchange rate regimes, in particular Inflation Targeting, has been increasing steadily. Latin-America was no exception. Some authors have argued that there is a flaw in the way in which the system has been conducted in the region.When inflation falls, the Central Bank is reluctant to cut interest rates, but when inflation increases, the Central Bank is willing to raise interest rates very aggressively, adding an unnecessary bias to monetary and exchange rate policies. This paper analyzes the asymmetry of monetary and exchange rate policies in the five largest Latin-American Inflation Targeting countries, Brazil, Chile, Colombia, Mexico, and Peru. Using different econometric techniques, I find that the Central Banks, with the exception of Chile, suffer from "fear of floating". This is a more pronounced phenomena for the case of Brazil and Mexico, as the literature has argued. JEL Classification Codes: E58, F30, F43.Markov-Switching Models, GMM, STAR Models.2 my econometric estimation is to test for the presence of asymmetries in the evolution of the exchange rate.But because exchange rate may behave asymmetrically for reasons other than policy, I also estimate a set of Central Bank reaction functions for interest rates and reserve accumulation, to determine the impact of monetary and exchange rate policy on the observed exchange rate behavior.A brief summary of my results is as follows: there are some signs that the Central Banks from Latin-America dislike depreciations more than appreciations, with the exception of Chile. Moreover, this behavior seems to be more pronounced for the cases discussed by Barbosa-Filho and Ros, Brazil and Mexico. This paper is structured as follows. After this introduction, section 3.2 comments on the related literature. Section 3.3 describes the econometric techniques and presents the results. Finally, section 3.4 concludes. Related LiteratureThe recent thinking in macroeconomics have converged on a sort of synthesis, known as the "New Consensus Macroeconomics". This consensus agrees on the desirability of an autonomous monetary policy, and how to conduct it. The interest rate has replaced monetary aggregates on the monetary policy rules. It has been shown that a fully microfounded model based on a representative and forward looking agent framework is able to determine the equilibrium without any reference to the quantity of money, provided that the interest rate rule is sufficiently sensitive to changes in the rate of inflation. This is known as the "Taylor-Principle", and it is embodied in the famous "Taylor-Rule". 2 Intuitively, the principle says that the rate of interest should be increased by more than inflation when inflation increase above the inflation target, to avoid a feedback from higher inflation to lower real interest rates, and from lower real interest rates to more aggregate demand and higher inflation. Conversely, when inflation falls below the target, the interest rate should be reduced by m...
This paper highlights the role of external indebtedness and the presence of inflationary inertia in order to assess the effectiveness and sustainability of inflation targeting during disinflation episodes. As the recent Argentinian experience illustrates, a sluggish inflation rate and a significant current-account deficit may make the stabilization process difficult. To illustrate the point, we build a model that shows that, when inflation adjusts fast, the target may be achieved without building too much external debt. But if inflation adjusts slowly, an excessive build-up of external debt could lead to an increase in the risk premium, a sudden shortage of foreign exchange, and the eventual collapse of the inflation-targeting regime.
This paper explores the effects of currency depreciations on output for the main Latin American countries that have been using Inflation Targeting for almost two decades. We construct VAR models for Brazil, Chile, Colombia, Mexico and Peru for the last two decades and we find that depreciations have short-run contractionary effects in Brazil and Mexico. We illustrate some of the policy implications of that finding by building a simple model, and we show that contractionary effects of depreciations may have destabilizing effects when monetary policy is conducted using a standard Taylor Rule.
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