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The Quest for Price Stability in Central America and the Dominican Republic*, Eric Parrado, Luis Jácome

This paper addresses the question of why inflation has not yet converged to price stability in Central America and the Dominican Republic and is currently relatively high by Latin American standards. It suggests that despite the institutional strengthening of monetary policy, important flaws remain in most central banks, in particular a lack of a clear policy mandate and little political autonomy, which are adversely affecting the consistency of policy implementation. Empirical analysis reveals that all central banks raise interest rates to curtail inflation but only some of them increase it sufficiently to effectively tackle inflation pressures. It also shows that some central banks care simultaneously about exchange rate stability. The potential policy conflict arising from a dual central bank mandate and the unpredictable policy response is probably undermining markets' confidence in central banks' commitment to price stability, thereby perpetuating an inflation bias
Table Of Contents
Contents; I. Introduction; Figures; 1. Inflation in Central America and the Western Hemisphere; 2. Inflation in Central America, Western Hemisphere, and Industrial Countries; II. The Institutional Framework for Monetary Policy in Central America; A. A Snapshot of Central Banks' Reforms and their Main Flaws; B. Legal Central Bank Independence; 3. Legal Central Banks Independence Before and After the Reform; 4. Legal Central Banks Independence: All Latin America; Tables; 1. Central Banks' Legal Independence as of 2005; 2. Inflation performance in Central America
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (36 p.)
Specific Material Designation
Form Of Item

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