The Chilean experience with inflation targeting
Empirical studies have concentrated on testing the effectiveness of inflation targeting in industrialized economies, perhaps because of their longer experience and better data availability. However, more than half of the countries now targeting inflation are emerging market economies. The performance of inflation targeting in these countries has not been sufficiently studied. Using Generalized Method of Moments, I estimate a structural small-open-economy model of Chile, the country with the longest experience of inflation targeting and an emerging market economy. I find that the monetary authority has targeted not only inflation but also output and the exchange rate. The finding indicates that inflation has been more forward looking than backward looking. Still a high degree of inflation inertia was present during the sample period. In addition, I found that inflation targeting has been a credibility enhancing mechanism in Chile, measuring credibility by the reduction of inflation inertia after the framework was set in place in 1990.
Mosquera, Santiago, "The Chilean experience with inflation targeting" (2005). ETD Collection for Fordham University. AAI3159394.