Book Philosophy Human Nature And The Collapse Of Civilization Articles And Reviews 2006 2017 2017
Formann, A. Kaufmann, D. Mooi, E. Nielsen, L. Sanahuja, J. Anuario , M. Mesa coord. Sneath, P. Sumner, A. Tezanos, S.
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Ward, J. Annex A1 Table A1. This analysis uses the method proposed by Ward , who argued that clusters should be constituted in such a way that, when merging two elements, the resulting information loss is minimal. Next, the squares of the Euclidean distances between each element and the centroids vector of means are calculated for all clusters.
Then the distances corresponding to all the elements are summed. For this research in particular, the Ward method and the farthest-neighbour method both provide similar classifications of the countries of Latin America and the Caribbean, thus supporting the robustness of the results obtained. Annex A3 Table A3. Annex A4 Figure A4. Peru 21 Mexico 17 Venezuela Bol. Annex A5 Table A5. Coefficients 0. Abstract In recent decades, Latin American countries have adopted more flexible exchange-rate regimes and set inflation targets. Therefore, the exchange rate tends to appreciate a lot and depreciate little.
This paper analyses the asymmetry of the monetary and exchangerate policies of the five largest Latin American countries in which inflation targets are used: Brazil, Chile, Colombia, Mexico and Peru. Nonlinear econometric techniques are used to show that there is "fear of floating", except possibly in Chile and Peru, and that the symptoms are more pronounced in Brazil and Mexico. Email: emilianolibman gmail. Introduction In recent decades, several developed and non-developed countries have adopted inflation-targeting policy regimes, under which the central bank commits to delivering a low and stable rate of inflation, using a short-term interest rate as the main policy instrument.
Inflation-targeting countries maintain a relatively open capital account, and the usual prescription is to let the exchange rate float freely and to refrain from foreign-exchange-market intervention. As monetary policy is used to target inflation and possibly also the output gap , interest-rate changes may put too much pressure on the foreign-exchange market; and most central banks are unwilling to tolerate very large exchange-rate fluctuations. Interventions to suppress exchange-rate volatility are often the norm.
In fact, theory does not necessarily preclude the central bank from buying and selling foreign assets, as long as this policy aims to cushion temporary shocks or other exchangerate movements that are not justified by economic fundamentals.
The largest Latin American countries have all adopted inflation targeting, including Brazil , Chile ,1 Colombia , Mexico and Peru Although current exchange-rate regimes are much more flexible than in the past, central banks continue to intervene heavily in the foreign-exchange market to cushion wide exchange-rate swings Chang, There are good reasons to believe that this type of intervention has not been implemented with equal intensity during appreciation and depreciation episodes.
For example, depending on whether shocks are positive or negative, the economy may adjust inadequately. But if the shock is positive, for example, if the terms of trade improve and an appreciation is called for, then the economy may adjust smoothly. Alternatively, the presence of asymmetries may be a sign of underlying problems: for example, the literature on fear of floating posits that inflation is the underlying reason why central banks dislike depreciations.
Book Philosophy Human Nature And The Collapse Of Civilization Articles And Reviews
If inflation-targeting countries display fear of floating then there are good reasons to believe that inflation expectations are not well anchored by monetary policy. In short, asymmetric behaviour has consequences for macroeconomic performance and is related to several sources of instability. It is therefore interesting to analyse whether the Latin American countries that have adopted flexible exchange-rate regimes fear exchange-rate fluctuations. Specifically, the observed behaviour of the exchange rate is analysed to identify the presence of any asymmetries.
Nonetheless, exchange rates may behave 1. Although Chile adopted inflation targeting in , but it only really started to float more or less freely in This is not a problem as the estimates used in this study start in , the period that combines inflation targeting and floating.
This paper abides by the convention of defining the exchange rate as the number of units of domestic currency per dollar; so, a fall in the exchange rate represents an appreciation, while a rise signifies a depreciation. Asymmetric monetary and exchange-rate policies in Latin American countries that use inflation targeting.
In Brazil and Mexico, exchange-rate changes seem to be anchored to an asymmetric band in which the lower bound is further from the target rate than the upper bound. Appreciations were more persistent than depreciations in all of the countries, except Peru, where both appreciations and depreciations were relatively short-lived in other words, an appreciating exchange rate would soon be followed by a depreciation, and vice-versa.
Appreciations were also a highly persistent phenomena in Brazil, Chile and Mexico. Lastly, in all cases except Chile, reserve accumulation seems to react to exchange-rate depreciations, but not to appreciations, and interest rates show little sensitivity to exchange-rate fluctuations. The rest of this paper is structured as follows: section II contains a literature review; section III describes the econometric techniques used and presents the results, and section IV concludes.
The interest rate has replaced monetary-policy rules based on the quantity of money. It has been shown that a model with explicit microfoundations based on a representative agent framework can determine the equilibrium without any reference to the quantity of money, provided the interest-rate rule is sufficiently sensitive to changes in the inflation rate. Conversely, when inflation falls below the target, the interest rate should be reduced by more than inflation. When the Taylor principle is satisfied, inflationary expectations are anchored by the inflation target.
Moreover, if there are no real frictions, stabilizing inflation also implies stabilizing the output gap. This is the divine coincidence evoked by Blanchard and Gali Because inflation targeting appears to stabilize both output and inflation at very little cost, it has become the most popular and appealing macroeconomic regime.
The core propositions for a closed economy presumably also apply, although there are additional complications associated with the existence of external monetary and real shocks. Nonetheless, the effects of exchange-rate fluctuations and the scope of central-bank interventions in the foreign exchange market are subject to intense debate. While some authors argue that inflation targeting requires a fully flexible exchange rate, others are willing to accept a role for temporary interventions by the central bank see Ball, , for a discussion of these issues. Although exchange-rate regimes are much more flexible than in the past, central banks still intervene heavily to cushion large movements in exchange rates Chang, There are good reasons to believe that such interventions have not been implemented with the same intensity during episodes of appreciation and depreciation.
Calvo and Reinhart argue that, when the financial system is highly dollarized, the central bank may fear that currency depreciations will trigger bank failures. It is also possible that central banks fear the inflationary effects of depreciations, although exchange-rate pass-through has recently declined by non-trivial amounts. On the other hand, when the competitiveness of the tradable sector is an issue, the central bank may intervene to prevent currency appreciations, a phenomenon known as a fear of appreciation, or the opposite of fear of floating, as exemplified by recent events in East Asia Levy-Yeyati and Sturzenegger, Some observers of the Latin American economies claim that inflation targeting has introduced a bias towards overvaluation, since central banks react more aggressively to curb depreciations, but are more cautiously when responding to appreciations Barbosa-Filho, ;4 and Ros, This paper will analyse the behaviour of exchange rates in the main Latin American countries that have used inflation targeting over the last 15 years.
A panel smooth transition autoregressive model with three regimes is estimated, along with a Markov-switching model.
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These two models will estimate the upper and lower bounds of an exchange rate band, and the probabilities of a transition from depreciation to appreciation, respectively, for a series consisting of the natural logarithm of the rate of variation of the exchange rate. This is the simplest way to test whether monetary and exchange-rate policy in inflation-targeting Latin American countries was in fact asymmetric; and it follows the approach suggested by Pontines and Siregar Empirical approach and results Central bank interventions in the foreign exchange market have been common in Latin America in recent years.
However, as exchange rates may appreciate or depreciate in spite of central bank interventions, it is of interest to gauge the overall pressures on exchange rates by also considering the trends in foreign-exchange reserves and interest rates. One way to combine these three elements exchange rates, interest rates, and reserves in a single index is to construct an exchange market pressure EMP index, as proposed by Kaminsky, Lizondo and Reinhart and by Reinhart and Kaminsky The index is calculated as follows: 4.
Because appreciations are deflationary and depreciations are inflationary in the short run, any democratic government tends to tolerate appreciations but fight depreciations of their currencies. This tends to make monetary policy pro-cyclical in the fact of external shocks. They also display the natural logarithm of the exchange rate, so the slope of the line captures the rate of depreciation.
The figures clearly show that the inflation-targeting Latin American countries experienced significant pressures towards appreciation, but also important pressures for depreciation.
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