Index
A
Accountability, 5, 32, 44–45, 45n6
in Atlantic model, 74
with inflation targeting, 46
Argentina, 14n5, 15n7, 19n16
exchange rate pass-through in, 102
external shocks to, 14
financial stability in, 43
governing structure in, 17
government financing in, 19, 23
inflation in, 30, 50
insurance companies in, 74n32
international reserves in, 14, 23
monetary policy development in, 35
National Economic Council in, 19n14
nationalization of banks in, 16
reserve requirements in, 22n25
short-term interest rate in, 92
Atlantic model, 15, 30
accountability in, 74
Australia, 119
expectations of inflation in, 55f
inflation in, 54, 56
nominal exchange rate in, 48f
Autonomy of monetary policy, 5–6, 29n37, 90–98, 98f
determinants of, 96–98
from external conditions, 3
spillovers that impair, 94
B
Balance of payments, IMF and, 24
Banking crisis, in Brazil, 177–78
Basel III
Brazil and, 174, 176, 177–78, 192
Mexico and, 155n14
Benchmarks
for currency depreciations, 101, 103f
for financial shocks, 161, 161t
for forward guidance, 136n4
for inflation, 102
in monetary policy, 148
for price stability, 147
Bolivia, 15n7, 19n16
dollarization in, 86
international reserves in, 46
short-term interest rate in, 92
Boom-bust cycles, risk of, 3
Brazil, 15
banking crisis in, 177–78
Basel III and, 174, 176, 177–78, 192
capital flows in, 215
countercyclical capital requirement in, 184
Credit Bureau in, 180–81
credit cycle in, 7
Credit Default Law in, 181, 181n12
credit-to-GDP gap shock in, 207
database monitoring in, 182
Deposit Guarantee Fund in, 181
Derivatives exposure registry (CED), 181
exchange rate in, 47f, 60f
exchange rate intervention in, 68
exchange rate pass-through in, 102
financial crisis of 2008 and, 178, 178n10
financial deepening in, 180–81
financial stability in, 43
Financial Stability Committee (COMEF), 183
governing structure in, 43n4, 177n8
household indebtedness in, 7, 178, 179f
housing loans in, 186n18, 189n20
independence of central bank in, 19, 43n2, 47f
inflation in, 24, 25f, 29f, 30, 47f, 176–77
inflation targeting in, 46, 47f, 56
insurance companies in, 74n32
IRFs in, 193, 199, 200f, 201f, 202f, 203f, 204f, 205f, 206f, 207
liquidity in, 178
macroprudential policy in, 173–215, 200f, 201f, 202f, 203f, 204f, 205f, 206f
monetary policy in, 28n36, 173–215, 200f, 201f, 202f, 203f, 204f, 205f, 206f
money supply in, 24, 25f
National Monetary Council in, 183n15, 184, 192
optimal policy in, 185–93, 190t–191t
regional presence of banks in, 180, 180f
reserve requirements in, 176, 186, 188
risk-weighted assets in, 72, 188–89, 207
short-term interest rate in, 92
social mobility in, 180, 181f
state-owned bank in, 15n6
See also Brazil, Chile, Colombia, Mexico, and Peru
Brazil, Chile, Colombia, Mexico, and Peru (LA5), 27–28
exchange rate intervention in, 68n28
exchange rate pass-through in, 101
global integration of, 90
in Great Recession, 31
inflation targeting in, 47–48, 49t
international reserves in, 63
Bretton Woods Agreement, 11, 15
demise of, 19, 24
devaluations and, 24
exchange rate and, 24
monetary policy in, 24
temporary suspension of, 16
Brussels International Financial Conference, 13
C
Canada, 119
inflation in, 56
nominal exchange rate in, 48f
Capital flows, 2, 25–26, 70, 84
in Brazil, 215
dollarization and, 25
exchange rate and, 26, 32, 57
financial crisis of 2008 and, 27–28, 58, 224
foreign exchange and, 28
IMF and, 86
increases in, 84
inflation and, 32
interest rate and, 21, 25
macroprudential policy and, 28
monetary policy and, 12, 84-86
in Peru, 49
reserve requirements and, 49, 223t
spillovers from, 223
taxation of outflows, 184
Central bank independence, 18–20, 21f, 47f
Cukierman index of, 20
in Brazil, 43n2
in inflation targeting, 44, 46
measuring, 45, 45nn6–8
for price stability, 43–44
reform and, 45t
Central banks. See specific topics
Chicago Board Options Exchange Volatility Index (VIX), 92, 93, 117, 119
Chile, 14n5, 15n7, 19, 19n18
assets of central bank in, 23f
discount rate in, 21n23
economic development in, 15
exchange rate in, 47f, 60f
exchange rate intervention in, 66f, 68
financial stability in, 73
fiscal deficit financing in, 19
gold standard in, 13n3, 22
governing structure in, 17
government financing in, 18n13, 23
independence of central bank in, 19, 47f
inflation in, 24, 25f, 47f, 54
inflation targeting in, 46, 47f
liquidity in, 63
long-term interest rate in, 110n1, 112, 113, 123
monetary policy in, 16
monetary policy development in, 35
in monetary policy golden age, 38
money supply in, 24, 25f
price stability in, 43
reform in, 43
reserve requirements in, 19n14
short-term interest rate in, 92
See also Brazil, Chile, Colombia, Mexico, and Peru
China, 32, 174
Christiano-Fitzgerald filtered business cycle, 117, 126
Colombia, 15nn7–8, 19n16, 19n18, 29f
economic development in, 15
exchange rate in, 47f, 60f
gold standard in, 22
governing structure in, 17
government financing in, 18n13
independence of central bank in, 47f
inflation in, 47f
inflation targeting in, 46, 47f
monetary policy development in, 35
in monetary policy golden age, 38
price stability in, 43
reserve requirements in, 28n36, 220
See also Brazil, Chile, Colombia, Mexico, and Peru
Commercial banks, liquidity in, 13–14
Consumer Price Index (CPI), 90
for U.S. term premium, 117, 126–27
COPOM. See Monetary Policy Committee
Costa Rica, 15, 19n16
financial stability in, 43
in monetary policy golden age, 38
reserve requirements in, 22n25
short-term interest rate in, 92
Countercyclical capital requirement, 15, 22, 42, 148
in Brazil, 184
external shocks and, 84
in Peru, 7–8
Coverage ratio rule, 148, 164
in Mexico, 155n14
CPI. See Consumer Price Index
Credit cycle, in Brazil, 7
Credit Default Law, in Brazil, 181, 181n12
Credit spread, 151–52
financial shock with, 161, 162f
macroprudential policy and, 165–69, 167t
monetary policy and, 165
policy rate on, 165
Credit-to-GDP gap, 155n14, 161, 163f
in Brazil, 187–88, 207
loss function and, 192, 194t–195t
Cuba, 15
D
De-dollarization. See Dollarization
Depreciation. See Exchange rate
Devaluations
Bretton Woods Agreement and, 24
of exchange rate, 24
inflation and, 25n29, 30
interest rate and, 25n29
Discount rate
in Chile, 21n23
loss of popularity with, 22
in Mexico, 21n24
as monetary policy, 21
in monetary policy, 21
Dollar (U.S.)
to gold, 11, 24
petro, 25n30
widespread use of, 101–2
Dollarization, 25, 86
and de-dollarization, in Peru, 7–8, 219–20, 219n1, 226, 226f, 227f, 245f, 246f
capital inflows and, 25
exchange rate and, 220
monetary policy autonomy and, 94
prudential policy and, 221–27, 223f, 225f, 226f, 227f
reserve requirements and, 228, 235–40, 238t–239t, 241t, 242f
Dollar swap lines, with Federal Reserve, 3n4
Dominican Republic, 15, 19n16, 43, 44t
Dynamic stochastic general equilibrium (DSGE), 173, 174, 185–86, 186f, 187f
E
Economic development, 31
in Colombia, 15
inflation targeting and, 88n2
monetary policy for, 15–16, 19
Ecuador, 15n7, 19n16
gold standard in, 13n3, 22
governing structure in, 17
monetary policy development in, 36
El Salvador, 14, 14n5, 15n7, 19n16
Employment, 31
unemployment, in U.S., 246f
Exchange rate, 2, 23, 26, 41, 47f, 58–62, 60f, 86, 110, 119, 178,
benchmarks for, 101, 103f
Bretton Woods Agreement and, 24
capital flows and, 26, 28, 32, 57
de-dollarization and, 220
devaluations of, 24
fear of floating and, 46n9
flexibility of, 46, 58n18, 84–86, 87f, 96
following end of commodity supercycle, 58-62
foreign exchange and, 222
gold standard and, 13n3
hedging markets and, 46
inflation and, 25n29, 26, 51, 53 110
inflation targeting and, 46, 57–69
interest rate and, 32, 91, 93n11
international reserves and, 46, 62–69, 64f
intervention in, 62–69, 66f, 66t, 68n28, 76
pegging, 84, 87f
price stability and, 90
spillovers and, 96
transparency in, 67, 69
U.S. term premium and, 124t–125t
volatility of, 48f, 65n21, 222
Exchange rate pass-through, 98–104, 101n20, 105f
estimates of, 105f
inflation and, 61, 102, 104f
inflation targeting and, 104, 104f
External shocks, 199
in Argentina, 14
countercyclical capital requirement and, 84
inflation and, 30
monetary policy after, 58–62, 84
F
FDI. See Foreign direct investment
Fear of floating, exchange rate and, 46n9
Federal Open Market Committee, 133
Federal Reserve, 32
dollar swap lines with, 3n4
interest rate of, 247f
long-term interest rate and, 96
monetary policy of, 94
Peru and, 219, 225
quantitative easing by, 111, 219, 225
Financial accelerator, 150, 175n5
Financial crisis of 2008, 1, 41
Brazil and, 178, 178n10
capital inflows and, 27–28, 58, 224
financial shock and, 27
forward guidance in, 131
macroeconomics and, 145–46
Peru and, 222
policy rate and, 1
Financial deepening, 6
in Brazil, 180–81
Financial shocks, 158–64, 162f, 163f, 168f
benchmarks for, 161, 161t
financial crisis of 2008 and, 27
Financial stability, 1, 31, 41–42, 69–75, 93
banking crises and, 71f
in Chile, 73
inflation and, 3, 6–7
inflation targeting and, 2, 145, 147n4
leaning against the wind and, 2
liquidity and, 173–74
macroprudential policy and, 145–69
in Mexico, 73
monetary policy and, 145–69, 147n5
in Peru, 222
reform and, 43
in Uruguay, 73
Financial Stability Board (FSB), 178
Foreign direct investment (FDI), 185
Foreign exchange intervention
empirical evidence on, 67–68, 76
instruments used for, 66
microstructure, 62–63
portfolio balance channel, 62
precautionary saving channel, 63
signaling channel, 62
Forward guidance, 6
benchmarks for, 136n4
defined, 131
Delphic, 132–33, 136nn5–6
in financial crisis of 2008, 131
interest rate and, 134–38, 134n2
in monetary policy, 131–39
Odyssean, 132–33
policy rate and, 132, 133
state-contingent, 134n1
transparency in, 133, 136
FSB. See Financial Stability Board
G
Genoa Conference, 13
Global financial crisis of 2008. See Financial crisis of 2008
Gold
dollars to, 11, 24
international reserves in, 21
Gold standard, 12–13, 12n2
collapse of, 14
currency issuance and, 18
exchange rate and, 13n3
in Great Depression, 22
inflation and, 30
in Mexico, 22
Governing structure, of central banks, 17–18
in Brazil, 43n4, 177n8
in monetary policy golden age, 38
Government financing
in Argentina, 19, 23
in Chile, 18n13, 23
in Colombia, 18n13
in Great Depression, 23
inflation from, 30
in Mexico, 18n13, 23, 23n26
in Peru, 23
Government ownership of banks. See Nationalization (government ownership) of banks
Great Depression, 18, 31
gold standard in, 22
government financing in, 23
Great Recession, LA5 in, 31
Greenspan conundrum, 111
U.S. term premium and, 109
Grove mission, 15n8
Guatemala, 15, 15n7, 19n16
monetary policy development in, 36
H
Hedging markets, exchange rate and, 46
Heterodox economic programs, 26
Honduras, 15, 19n16
in monetary policy golden age, 38
Household indebtedness, in Brazil, 7, 178, 179f
Housing loans, 175
in Brazil, 186n18, 189n20
in Peru, 229n9, 230f, 246f
I
IMF. See International Monetary Fund
Independence, central bank (see Central bank independence)
Inflation, 47f, 50f, 88, 155n14
achievements and reversals in reducing, 42–51
in Argentina, 30
in Australia, 54, 56
benchmarks for, 102
in Brazil, 24, 25f, 29f, 30, 176–77
in Canada, 56
capital flows and, 32
in Chile, 24, 25f, 29f, 54
in Colombia, 29f
Delphic forward guidance and, 136n6
devaluations and, 25n29, 30
exchange rate and, 25n29, 26, 51, 53, 101, 102, 103, 103f, 104f, 110
expectations of, 54–56, 93, 97, 97n14
external shocks and, 30, 58–62
financial stability and, 3, 6–7
gold standard and, 30
from government financing, 30
macroprudential policy on, 207–14, 209t–211t, 213t, 214t
in Nicaragua, 30
in Peru, 29f, 30, 221n4
reduction of, 16, 88–89
tolerance for, 15
U.S. term premium and, 122
volatility of, 4, 48f, 88, 89f
See also Price stability
Inflation targeting, 41, 47f
accountability with, 46
central bank independence and, 44, 46
economic development and, 88n2
effectiveness of, 51–56, 88
exchange rate and, 46, 57–69
exchange rate pass-through and, 104, 104f
expectations of inflation, 54–56, 55f, 57f
financial stability and, 2, 145, 147n4
framework used by Bank of England, 59
in LA5, 47–48, 49t, 58
loss function and, 147, 152
in monetary policy, 4, 27, 28f, 54n15, 175
in Peru, 219
price stability from, 146–47
reform and, 42–45, 44t
transparency with, 46, 49t, 65, 67
Insurance companies, 74n32
Interdependence, in monetary policy, 3
Interest rate
capital inflows and, 21, 25
devaluations and, 25n29
exchange rate and, 91, 93n11
exchange rate depreciation and, 32
of Federal Reserve, 247f
forward guidance and, 134–38, 134n2
global financial integration and, 91, 91f
liquidity and, 49n11
long-term, 95–96, 95f
loss function and, 134
macroeconomics of, 6
medium-term, 109
money supply and, 21
neutral real, 54
nominal, 155n14, 193n23
SELIC, 183n14, 184, 208
short-term, 6, 90, 92, 92n7, 94, 95–96, 95f
spillovers to, 95–96, 95f
U.S. term premium and, 6, 109
See also Long-term interest rate; Short-term interest rate
International Monetary Fund (IMF), 41n1, 68
on Brazil, 183
capital flows and, 86
monetary approach to the balance of payments of, 24
World Economic Outlook of, 51–52, 53f
International reserves, 7, 41
in Argentina, 14, 23
exchange rate and, 62–69, 64f
foreign exchange and, 46, 62–69
in gold, 21
gross changes in, 64f
in LA5, 63
Investment/saving curve (IS), 134
macroeconomic block and, 151
K
Keynesian economics, 15
See also New Keynesian model
L
LA5. See Brazil, Chile, Colombia, Mexico, and Peru
Leaning against the wind
financial stability and, 2
monetary policy, 146n3, 149, 158–59
Lehman Brothers, 3, 3n4, 173
Liquidity
in Brazil, 178
in Chile, 63
in commercial banks, 13–14
financial stability and, 173–74
in Peru, 222
petro dollars and, 25n30
risk aversion and, 199
Loan-to-value (LTV), 186n18, 225
Local projection method (LPM), 99
Long-term interest rate
in Chile, 110n1, 112, 113, 123
Federal Reserve and, 96
in Mexico, 112, 123
spillovers to, 95–96, 95f
in U.S. and selected countries, 112f
U.S. term premium and, 109, 110–16, 114t, 115t, 126f
Loss function, 157, 186–87
credit-to-GDP gap shock and, 192, 194t–195t
inflation targeting and, 147, 152
interest rate and, 134
prudential policy and, 137
LPM. See Local projection method
LTV. See Loan-to-value
M
Macroprudential policy
in Atlantic model, 72–74
in Brazil, 173–215, 200f, 201f, 202f, 203f, 204f, 205f, 206f
capital inflows and, 28
interaction with dollarization, 221–23
interaction with monetary policy, 75, 173–77
credit spreads and, 165–69, 167t
financial stability and, 145–69
frameworks, 6–8, 72–75
and inflation, 207–14, 209t–211t, 213t, 214t
in Pacific model, 74
Mexico, 16, 19n18
autonomy-impairing spillovers in, 94
banking crises in, 26
Basel III and, 155n14
delinquency index in, 155n14
discount rate in, 21n24
exchange rate in, 47f, 60f
foreign exchange intervention in, 68
exchange rate pass-through in, 102
financial stability in, 43, 73
gold standard in, 22
government financing in, 18n13, 23, 23n26
independence of central bank in, 47f
inflation in, 47f
inflation targeting in, 46, 47f
long-term interest rate in, 112, 123
monetary policy development in, 37
monetary policy golden age in, 38
policy rate in, 49
price stability in, 43
reserve requirements in, 22, 22n25
short-term interest rate in, 92
See also Brazil, Chile, Colombia, Mexico, and Peru
Microprudental policies, 2n3
Monetary approach to the balance of payments, of IMF, 24
Monetary policy
autonomy. See Autonomy of monetary policy
in Brazil, 28n36, 173–215, 200f, 201f, 202f, 203f, 204f, 205f, 206f
in Bretton Woods Agreement, 24
capital flows and, 12
in Chile, 16, 122
coordination of, 2
credit spreads and, 165
developmental phase for, 23–26, 35–37
discount rate in, 21
early years of, 20–23
for economic development, 15–16, 19
evolving foundations of, 12–20
after external shocks, 58–62, 84
of Federal Reserve, 94, 109
financial stability and, 145–69, 147n5
forward guidance in, 131–39
frameworks for, 6–8, 20–29, 22f
global financial integration and, 83–106, 85f, 91f
golden years of, 26–29, 38
independence in, 5–6, 29n37, 90–98, 98f
inflation targeting in, 4, 27, 28f, 54n15, 175
leaning against the wind, 146n3, 149, 158–59
prudential policy and, 139–41
reserve requirements in, 22, 22n25
risk-weighted assets and, 220–21
short-term interest rate as, 111
spillovers from, 3, 5–6, 90–98
Taylor-type rules and, 93, 175
transparency with, 47
Monetary Policy Committee (COPOM), 59, 183, 183n14
Money supply
in Brazil, 24, 25f
in Chile, 24, 25f
interest rate and, 21
Mortgages. See Housing loans
N
National Economic Council, in Argentina, 19n14
Nationalization (government ownership) of banks, 15n6, 17, 17t
in Argentina, 16
Neutral real interest rate, 54
New Keynesian model, 136n6, 152
financial accelerators and, 175n5
New Zealand
Delphic forward guidance in, 136n5
nominal exchange rate in, 48f
transparency in, 65
Nicaragua, 15, 19n16
reserve requirements in, 22n25
Nominal exchange rate, 48f
Nominal interest rate, 155n14, 193n23
O
Output gap
measurement of, 52
revisions to, 51–52
P
Pacific model, 14
macroprudential policy in, 74
Paraguay, 15, 19n16
dollarization in, 86
Pegging, of exchange rate, 84, 87f
Peru, 15, 15n7, 19n18
assets in, 23f
autonomy-impairing spillovers in, 94
capital flows in, 49
car loans in, 229, 229n9, 230f, 246f
countercyclical capital requirement in, 7–8
de-dollarization in, 7–8, 219–43, 219n1, 221n4, 242f
dollarization in, 7–8, 86, 219–20, 219n1, 226, 226f, 245f, 246f
exchange rate depreciation in, 59
exchange rate volatility in, 65n21
Federal Reserve and, 219, 225
financial crisis of 2008 and, 222
financial stability in, 222
gold standard in, 22
government financing in, 23
housing loans in, 229n9, 230f, 246f
inflation in, 29f, 30, 221n4
inflation targeting in, 46, 219
insurance companies in, 74n32
international reserves in, 46
liquidity in, 222
monetary policy development in, 37
in monetary policy golden age, 38
price stability in, 43
prudential policy in, 219, 221–27, 223f, 225f, 226f, 227f
repos for credit expansion in, 233–35, 234f, 235f
repos for credit substitution in, 231–33, 232f
reserve requirements in, 28n36, 49, 219–43, 219n1, 225f, 238t–239t, 241t
risk-weighted assets in, 220–21
short-term interest rate in, 92
See also Brazil, Chile, Colombia, Mexico, and Peru
Petrodollars, liquidity and, 25n30
Phillips curve, 134, 140
macroeconomic block and, 151
Policy rate, 27
on credit spreads, 165
financial crisis of 2008 and, 1
forward guidance and, 132, 133
inflation and, 53
inflation targeting and, 148
in Mexico, 49
Price stability, 3, 29–32, 88
benchmarks for, 147
exchange rate and, 90
independence of central bank for, 43–44
from inflation targeting, 146–47
reform and, 43
Prudential policy
de-dollarization and, 221–27, 223f, 225f, 226f, 227f
loss function and, 137
in monetary policy, 139–41
in Peru, 219, 221–27, 223f, 225f, 226f, 227f
risk aversion and, 138–40
See also Macroprudential policy
Q
Quantitative easing
in Brazil, 178
by Federal Reserve, 111, 219, 225
R
Ramsey-type optimal policy analysis, 175n3
Real exchange rate, 151
Real Plan, 177
Reform
financial stability and, 43
independence of central bank and, 45t
inflation targeting and, 42–45, 44t
price stability and, 43
Repos for credit expansion, in Peru, 233–35, 234f, 235f
Repos for credit substitution, in Peru, 231–33, 232f
Reserve requirements
in Brazil, 176, 186, 188
capital flows and, 49
capital inflows and, 223t
in Chile, 19n14
in Colombia, 28n36, 220
de-dollarization and, 228, 235–40, 238t–239t, 241t, 242f
in Mexico, 22, 22n25
in monetary policy, 22, 22n25
in Peru, 28n36, 49, 219–43, 219n1, 225f, 238t–239t, 241t
Risk aversion, 6
liquidity and, 199
prudential policy and, 138–40
Risk-neutral state, 111, 113, 115t, 117
Risk-weighted assets, 7
in Brazil, 72, 188–89, 207
monetary policy and, 220–21
in Peru, 220–21
S
Second World War, 15
SELIC interest rate, 183n14, 184, 208
Short-term interest rate, 6, 90, 92, 92n7, 94
as indicator of monetary policy, 111
spillovers to, 95–96, 95f
Social mobility, in Brazil, 180, 181f
Spillovers
that impair monetary policy autonomy, 94
from capital flows, 223
exchange rate and, 96, 119
to interest rates, 95–96, 95f, 122
from macroeconomic policy, 174
in monetary policy, 3, 5–6, 90–98, 118–26
State-owned banks. See Nationalization (government ownership) of banks
T
Tablita arrangements, 25, 25n29
Taper tantrum episode, 3, 5, 5n8, 65, 68
U.S. term premium and, 109
Taylor-type monetary policy rule, 93, 148, 175, 187
Term premium, 109–29, 113f
data for, 126–27
empirical model for, 116
estimation of, 127–29
exchange rate and, 124t–125t
impact on small and open economies from U.S. term premium, 116–25
inflation and, 122
for interest rate, 6
long-term interest rate and, 109, 110–16, 114t, 115t, 126f
quantitative easing with, 111
in small open economies, 112–16
Transparency, 45n6, 187
in exchange rate, 67, 69
in forward guidance, 133, 136
with inflation targeting, 46, 49t, 65, 67
with monetary policy, 47
in New Zealand, 65
U
Unemployment, in U.S., 246f
United States (U.S.)
long-term interest rate in, 112f
monetary policy of, 109
Treasury Bills of, 247f
unemployment in, 246f
See also Federal Reserve; U.S. term premium
Uruguay, 15, 19n16
dollarization in, 86
financial stability in, 73
insurance companies in, 74n32
in monetary policy golden age, 38
short-term interest rate in, 92
state-owned bank in, 15n6
V
Vector autoregressions (VAR), 91, 93
for estimating spillovers, 92–93, 116–17
interacted-panel (IPVAR), 96–97
identified impulse-response functions, 109, 117, 118, 118t
for U.S. term premium, 117
Venezuela, 14, 14n5, 15n7, 19n16
banking crises in, 26
financial stability in, 43
inflation in, 50
in monetary policy golden age, 38
reserve requirements in, 22n25
VIX. See Chicago Board Options Exchange Volatility Index
W
World Economic Outlook, 51–52, 53f