Miguel A. Savastano

Monetary Policy Strategies for Latin America

Abstract The paper examines possible monetary policy strategies for Latin America that may help lock-in the gains in the fight against inflation attained by the region during the 1990s. Instead of focusing the debate about the conduct of monetary policy on whether the nominal exchange rate should be fixed or flexible, the focus should be on whether the monetary policy regime appropriately constrains discretion in monetary policymaking. This focus suggests that there are three basic frameworks that deserve serious discussion as possible, long-run strategies for monetary policy in Latin America: a hard exchange-rate peg, monetary targeting, and inflation targeting. We look at the advantages and disadvantages of each of these strategies in light of the recent track record of monetary policy in several Latin American countries for clues as to which of the three strategies might be best suited to economies in the region.