Abstract

IBARRA, Carlos A.. Disinflation and real currency appreciation in Chile and Mexico: the role of monetary policy. Inv. Econ [online]. 2008, vol.67, n.266, pp.67-94. ISSN 0185-1667.

Chile and Mexico followed strategies of gradual disinflation during the 1990s, conducted their monetary policies in broadly similar ways, and experienced real currency appreciation. But the appreciation was larger in Mexico, which helps to explain its economic-growth underperformance. Motivated by these parallels and contrasts, the paper compares the conduct of monetary policy in the two countries through (a) a qualitative analysis of monetary policy episodes -episodes featuring a clear shift in the policy stance- and (b) the estimation of error-correction models for the interest rate, and identifies the specific traits of Mexico's monetary policy that contributed to the large appreciation of its currency.

Keywords : disinflation; inflation; real currency appreciation; real exchange rate; monetary policy; interest rate; Chile; Mexico.