Inflation targeting works well in Latin America

Abstract

This paper analyses the extent to which inflation targeting (IT) has improved macroeconomic performance in a group of Latin American countries during the period 2000-2005. In the first part we build a model to clarify some key features and expected results in emerging economies that have adopted the IT regime. In the empirical part we apply statistical tests with data from eighteen Latin American countries, and show that the five inflation targeters obtained both better short-term macroeconomic results and higher medium-term economic growth than the other Latin American countries in the sample.