Front Matter

Front Matter

Yan Carriere-Swallow, Hamid Faruqee, Luis I. Jacome H., and Krishna Srinivasan
Published Date:
September 2016
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Note to Readers

This is an excerpt from Challenges for Central Banking: Perspectives from Latin America, edited by Yan Carrière-Swallow, Hamid Faruqee, Luis Jácome, and Krishna Srinivasan.

The global financial crisis brought to light fundamental challenges for central bankers. This timely volume provides a regional perspective on these challenges by including chapters authored by central bankers from Latin America, as well as IMF experts. The book provides a panoramic overview of the policy progress made to date and the challenges that lie ahead for central banks in the region. It places the subject in historical context by looking at how central banks in the region have evolved over the past century and outlines the challenges ahead in a more financially integrated global economy. Chapters also cover the related issues of spillovers and monetary independence. Finally, macroprudential and monetary policy frameworks are examined from the perspective of central bank staff.

This excerpt is taken from uncorrected page proofs. Please check quotations and attributions against the published volume.

Challenges for Central Banking: Perspectives from Latin America

Edited by Yan Carrière-Swallow, Hamid Faruqee, Luis Jácome, and Krishna Srinivasan

ISBN: 978-1-51359-176-6

Pub. Date: Fall 2016

Format: Digital; Paperback, 6 x 9 in., approx. 280 pp.

Price: US$30.00

For additional information on this book, please contact:

International Monetary Fund, IMF Publications

P.O. Box 92780, Washington, DC 20090, U.S.A.

Tel: (202) 623-7430 ♦ Fax: (202) 623-7201


© 2016 International Monetary Fund

Perspectives from Latin America


Yan Carrière-Swallow Hamid Faruqee Luis Jácome Krishna Srinivasan

© 2016 International Monetary Fund

Cataloging-in-Publication Data

Joint Bank-Fund Library

Names: Carrière-Swallow, Yan. | Faruqee, Hamid. | Jácome, Luis Ignacio. | Srinivasan, Krishna, 1965- | International Monetary Fund.

Title: Challenges for central banking : perspectives from Latin America / editors: Yan Carrière-Swallow, Hamid Faruqee, Luis Jacome, Krishna Srinivasan.

Description: Washington, DC : International Monetary Fund, 2016. | Includes bibliographical references.

Identifiers: ISBN 9781515391766 (paper)

Subjects: LCSH: Banks and banking, Central – Latin America.

Classification: LCC HG2710.5.A7C46 2016

978-1-51359-176-6 (paper)

978-1-47553-682-9 (PDF)

978-1-47553-681-2 (ePub)

978-1-47553-684-3 (Mobipocket)

The views expressed in this book are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Please send orders to

International Monetary Fund, Publication Services

P.O. Box 92780, Washington, DC 20090, U.S.A.

Tel.: (202) 623-7430 Fax: (202) 623-7201



Table of Contents

  • Foreword

  • Acknowledgments

  • Contributors

  • 1 Introduction: Latin America’s Central Banking Challenges—Past, Present, and Future

    • Hamid Faruqee and Krishna Srinivasan


  • 2 A Historical Perspective on Central Banking in Latin America

    • Luis I. Jácome H.

  • 3 Central Banking in Latin America: The Way Forward

    • Yan Carrière-Swallow, Luis Jácome, Nicolás Magud, and Alejandro Werner


  • 4 Implications of Global Financial Integration for Monetary Policy in Latin America

    • Yan Carrière-Swallow and Bertrand Gruss

  • 5 The Impact of the U.S. Term Premium on Emerging Markets

    • Alberto Naudon and Andrés Yany

  • 6 Forward Guidance and Prudence in Conducting Monetary Policy 131

    • Julián Parra Polanía


  • 7 Financial Stability Objectives: Drivers of Gains from Coordinating Monetary and Macroprudential Policies

    • Jessica Roldán-Peña, Mauricio Torres-Ferro, and Alberto Torres

  • 8 A Brazilian Perspective on Macroprudential and Monetary Policy Interaction

    • Fabia A. de Carvalho and Marcos R. de Castro

  • 9 De-dollarization of Credit in Peru: The Role of Conditional Reserve Requirements

    • Paul Castillo, Hugo Vega, Enrique Serrano, and Carlos Burga

  • Index


Since the global financial crisis, central banking has been undergoing a massive renovation. The crisis brought to light fundamental challenges for central bankers in terms of our purpose, our instruments, and what we hope to achieve. From the lessons learned, we have made progress in rewriting the central banking handbook, as it were, but that handbook is still a work in progress. Innovations such as quantitative easing, macroprudential policies, and the postcrisis capital framework for banks are still in their infancy, and public debate about the appropriate objectives and role of central banks is ongoing in many parts of the world.

That debate about central banking is no less important for emerging markets, including in Latin America. This is both because there are lessons to be learned from others’ experience and because today’s world is so interconnected. An overarching theme that connects us in both advanced and emerging market economies alike is that of setting monetary policies in an increasingly financially integrated world and addressing the underlying challenges that this presents.

At the IMF–World Bank Annual Meetings in Lima in October 2015, I had the pleasure of moderating a panel discussion on central banking challenges in Latin America from the perspectives of the central bank governors from five major economies: Brazil, Chile, Colombia, Mexico, and Peru. There was a strong consensus that central bank independence has been a great accomplishment in Latin America that should not be jeopardized. It has helped deliver low and stable inflation after a long history of countries’ struggling to achieve price stability and, in some cases, experiencing episodes of hyperinflation. Looking forward, concerns have shifted to the challenges of price stability in a world of globally integrated capital markets. A common theme is the volatility of capital flows and the lack of synchronization of cycles in the United States and many Latin American economies. For some, this poses challenges in terms of the independence of monetary policy.

Some challenges are more specific to Latin America. The region has greater exchange rate flexibility than other emerging market regions, so vulnerability to large exchange rate depreciations associated with negative terms-of-trade shocks is to some degree driving a rise in inflation above that observed in the other emerging market regions. Countries dependent on commodities have also had greater vulnerability to terms-of-trade shocks that then spilled over into balance of payments and fiscal challenges.

This volume is timely and important in many respects. As evident from the discussions in Lima with the five governors, Latin America’s central banks have to contend with new challenges in pursuing their policy mandates. They are doing so at a time when many of the traditional paradigms associated with central banking are in flux. The identification of those new challenges suggests a new agenda for research and policymaking, especially in terms of maintaining financial stability and containing international spillovers.

For the inflation-targeting central banks in Latin America, this volume brings together a discussion of core challenges such as monetary autonomy and spillovers with highly integrated financial markets, including issues such as exchange rate pass-through, managing market expectations, and the use of forward guidance.

From a financial stability perspective, how and when to use macroprudential policies and how to best coordinate with a flexible inflation-targeting framework are as much of an issue in Latin America as in the United Kingdom. But there are some differences in the challenges facing central banks in Latin America, such as the role of foreign capital flows with shallower domestic markets and the impact of a high degree of dollarization on their financial systems.

This book also addresses the link between macroprudential and monetary policy—a subject that is much debated in both advanced and emerging market policy circles. Macroprudential policies are increasingly seen as a first line of defense (along with microprudential supervision) to address concerns about financial stability, but experience with these tools is still nascent, and we have not accumulated enough evidence through a credit cycle to make definitive judgments about optimal policy. In that sense, this book makes a contribution to the discussion of a topic on which views are not yet conclusive, and from the distinct perspective of regional policymakers and researchers.

Finally, producing an authoritative volume such as this requires considerable analytical work and coordination (much of it behind the scenes), particularly by the staff of the IMF’s Monetary and Capital Markets Department and Western Hemisphere Department. In addition, the joint work between the staffs of the IMF and of the five central banks that contributed to this volume reflects a broader, conscientious effort to build a closer intellectual partnership between the Fund and its members in Latin America—an effort that I observed during my time as a Deputy Managing Director. In a way, this collaboration represents a deeper type of engagement—not one of the IMF giving policy advice, but rather of building a shared understanding of the issues as a stepping stone to developing policy strategies together. It is a good example of the IMF’s seeking to become more agile, integrated, and member-focused to better engage and serve its membership in pursuit of its global mandate.

Minouche Shafik

Deputy Governor Bank of England


The editors are grateful to Alejandro Werner and José Viñals for their unwavering support of research on central banking issues in Latin America and of this project in particular. This collaboration would not have been possible without the support of central bank governors Agustín Carstens (Mexico), Ilan Goldfajn and Alexandre Tombini (Brazil), José Darío Uribe (Colombia), Julio Velarde (Peru), and Rodrigo Vergara (Chile). Under their leadership, senior staff members across the various central banks have been able to dedicate valuable time to study the critical questions that make up this volume. Indeed, the governors themselves participated in a seminar on the topic of this book during the 2015 Annual Meetings of the International Monetary Fund in Lima, Peru, which was moderated by Minouche Shafik, Deputy Governor of the Bank of England.

The editors gratefully thank Maria Gutierrez and Andrea Herrera for their dedication and graceful assistance throughout the process; Rocio Arevalo and Modupeh Williams for helping organize the seminar in Lima; and Zohair Alam, Steve Brito, and Genevieve Lindow for excellent research assistance. Michael Harrup, Joanne Johnson, and Patricio Loo of the IMF Communications Department provided invaluable inputs to the editorial process and production of the book.


Carlos Burga is an Economist in the Monetary Programming Department of the Central Reserve Bank of Peru.

Yan Carrière-Swallow is an Economist in the Western Hemisphere Department of the International Monetary Fund.

Paul Castillo is Deputy Manager for Monetary Policy at the Central Reserve Bank of Peru.

Fabia Aparecida de Carvalho is an Advisor in the Research Department at the Central Bank of Brazil.

Marcos Ribeiro de Castro is an Advisor in the Research Department at the Central Bank of Brazil.

Hamid Faruqee is a Division Chief in the Western Hemisphere Department of the International Monetary Fund.

Bertrand Gruss is an Economist in the Research Department of the International Monetary Fund.

Luis I. Jácome H. is a Deputy Division Chief in the Monetary and Capital Markets Department of the International Monetary Fund.

Nicolás Magud is a Senior Economist in the Western Hemisphere Department at the International Monetary Fund.

Alberto Naudon is the Chief Economist at the Central Bank of Chile.

Julián Andrés Parra Polanía is a Senior Researcher in the Research Unit of the Central Bank of Colombia.

Jessica Roldán-Peña is Manager of Monetary Research at the Central Bank of Mexico.

Enrique Serrano is a Senior Economist in the Monetary Programming Department at the Central Reserve Bank of Peru.

Krishna Srinavasan is a Deputy Director in the Western Hemisphere Department of the International Monetary Fund.

Alberto Torres is Head of Public Credit at the Ministry of Finance of Mexico. At the time of writing, he was Chief Economist at the Central Bank of Mexico.

Mauricio Torres-Ferro is an Economist in the Research Department of the Central Bank of Mexico.

Hugo Vega is Head of Monetary Programming at the Central Reserve Bank of Peru.

Alejandro Werner is the Director of the Western Hemisphere Department of the International Monetary Fund.

Andrés Yany is a graduate student in the Economics Department at Stanford University. At the time of writing, he was an Economist in the Macroeconomic Analysis Department at the Central Bank of Chile.

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