Batini, N., K. Kuttner, and D. Laxton, 2005, “Does Inflation Targeting Work in Emerging Markets,” World Economic Outlook, September 2005, (Washington: International Monetary Fund).
Canales-Kriljenko, J., L. Jacome, A. Alichi, and I. Luis de Oliveira Lima, 2010, “Weathering the Global Storm: The Benefits of Monetary Policy Reform in the LA5 Countries,” IMF Working Paper 10/292 (Washington: International Monetary Fund).
Cukierman, A., S. Webb, and B. Neyapti, 1992, “Measuring the Independence of Central Banks and Its Effect on Policy Outcomes,” World Bank Economic Review, vol. 6(3), pages 353-98, September (Oxford: Oxford University Press).
Coulibaly, D., H. Kempf, 2010, “Does Inflation Targeting decrease Exchange Rate Pass-through in Emerging Countries,” Banque de France Working Paper No. 303 (Paris: Banque De France).
Dabla-Norris, E., and others, 2007, “Modalities of Moving to Inflation Targeting in Armenia and Georgia,” IMF Working Paper 07/133 (Washington: International Monetary Fund).
Delgado, F., and M. Meza, 2011, “Developments in Financial Supervision and the Use of Macroprudential Measures in Central America,” IMF Working Paper 11/XXX (unpublished, Washington: International Monetary Fund).
Frankel, J., 2010, “Monetary Policy in Emerging Markets: A Survey,” NBER Working Paper 16125 (Cambridge, MA: National Bureau of Economic Research), Available via the internet: http://www.nber.org/papers/w16125.
Freedman, C., and D. Laxton, 2009, “Why Inflation Targeting,” IMF Working paper 09/86 (Washington: International Monetary Fund).
Freedman, C., and I. Otker-Robe, 2009, “Country Experiences with the Introduction and Implementation of Inflation Targeting,” IMF Working Paper 09/161 (Washington: International Monetary Fund).
Freedman, C., and I. Otker-Robe, 2010, “Important Elements for Inflation Targeting for Emerging Economies,” IMF Working Paper 10/113 (Washington: International Monetary Fund).
Goldstein, M., 2002, “Managed Floating Plus,” Policy Analyses in International Economics (Washington, D.C.: Institute for International Economics).
Jácome, L., and E. Parrado, 2007a, “Characterizing Monetary Policy”, in Desruelle, D. and A. Schipke (2007), Economic Growth and Integration in Central America, IMF Occasional Paper No. 257 (Washington: International Monetary Fund).
Jácome, L., and E. Parrado, 2007b, “The Quest for Price Stability in Central America and the Dominican Republic,” IMF Working Paper 07/54 (Washington: International Monetary Fund).
Laurens, B., 2005, Monetary Policy Implementation at Different Stages of Market Development IMF Occasional Paper No. 244 (Washington: International Monetary Fund).
Leiderman, L., R. Maino, and E. Parrado, 2006, “Inflation Targeting in Dollarized Economies,” IMF Working Paper 06/157 (Washington: International Monetary Fund).
Medina Cas, S., A. Carrión-Menéndez, and F. Frantischek, 2011, “The Policy Interest-Rate Pass-Through in Central America,” IMF Working Paper 11/240 (Washington: International Monetary Fund).
Mishkin, F. and M. Savastano, 2000, “Monetary policy Strategies for Latin America,” NBER Working Paper No. 7617 (Cambridge, Massachusetts: National Bureau of Economic Research).
Mishkin, F. and M. Savastano, 2011, “Monetary Policy Strategy: Lessons from the Crisis,” NBER Working Paper 16755 (Cambridge, MA: National Bureau of Economic Research), Available via the internet: http://www.nber.org/papers/w16755.
Piñon, Marco, 2010, “Tendencias Recientes en los Marcos de Política Monetaria y Cambiaria en América Latina,” in Recesión con estabilidad: Realineando la senda hacia el futuro, ed. by L. Mesalles and O. Céspedes, (Academia de Centroamérica).
Roger, S., 2009, “Inflation Targeting at 20: Achievements and Challenges,” IMF Working Paper 09/236 (Washington: International Monetary Fund).
Roger, S., J. Restrepo, and C. Garcia, 2009, “Hybrid Inflation Targeting Regimes,” IMF Working Paper 09/234 (Washington: International Monetary Fund).
The authors would like to thank Alejandro López-Mejía, Marco Piñón, and Miguel Savastano for helpful comments and suggestions. They would also like to thank Geoffrey Bannister, Issouf Samake, and Yulia Ustyugova for their inputs on the monetary frameworks in CADR.
The discussion excludes Panama and El Salvador, both of which officially use the U.S. dollar as their legal tender. The CADR countries with some degree of monetary policy independence are Costa Rica, the Dominican Republic, Guatemala, Honduras (which, recently re-established a crawling band), and Nicaragua (that has a crawling peg regime).
The LA6 countries are Brazil, Chile, Colombia, Mexico, Peru, and Uruguay.
Instrument independence gives the central bank the authority to utilize or set its monetary policy instruments to achieve its inflation target.
This was the result of the large costs of the banking crisis of the 1982 borne by the central bank and a large accumulation of international reserves during the nineties under the exchange rate band regime, prior to floating.
In Chile and Uruguay, reforms were implemented drawing lessons from the costly banking crises experienced in the early 1980s and early 2000s, respectively.
Jácome and Parrado (2007a) also describe in detail the central bank reforms undertaken in CADR since the 1990s and measure central bank independence in the region.
In Costa Rica, losses arose from commercial bank rescue operations, and in Honduras, losses were a result of credit and rescue operations of the financial and non financial public sector.
A recently approved law for the BCN (2010) mandates a government recapitalization of the BCN during 2011.
Rules-based instruments are based on the regulatory power of the central bank and include reserve requirements and standing facilities. Money market operations include: Open market-type operations, which are market-based monetary operations thorough auction techniques regulated by the central bank. They involve (i) lending/borrowing with underlying assets as collateral, (ii) primary market issuance of central bank or government securities for monetary policy purposes, and (iii) acceptance of fixed-term deposits. Open market operations (OMOs) are market-based monetary operations and conducted by the central bank as one of the participants in the money market. OMOs involve (i) buying/selling assets outright in the secondary market, and (ii) buying/selling assets under a repurchase agreement in the repo market or through foreign exchange swaps. See Laurens (2005).
For more information on developments in financial supervision in the region, see Delgado and Meza (2011).
Information to classify each country according to the specified criteria is presented in Appendices I and II.