On the Links to a Recovery in Latin America

The business cycle of four of the largest Latin American countries is synchronized. The output gaps of Brazil, Chile, Colombia and Peru all peak before the crisis at the end of the century, go into a trough during the rise in risk aversion and the crisis of accounting practices crisis in 2002 and peak again […]

The External Factors of Monetary Policy in Latin America

Business fluctuations depend not only on monetary policy. Financial conditions matter too as demonstrated by advanced economies during the current Great Recession, and by emerging economies repeatedly due to the so called external factors of monetary policy. [1] The first chart shows the combined impact of the external factors of monetary policy in Latin America […]

Where should the US inflation rate go?

In the last five months currency in circulation and M1 in the US have grown at annual rates of 11.7% and 25.7%, yet the price level has decreased at an annual rate of 6.9%* . Some economists expect inflation, others, deflation. Part of the lack of consensus is due to the phrase “inflation is always and everywhere a monetary phenomenon”. Fortunately, it was Milton Friedman himself who played down the importance of money recently**.

The Mystery of a Rising Inflation in Latin America

As a consequence of the global financial crisis Latin American inflation is expected to fall as it did after the crisis of the end of the century. But the mystery is that inflation in Latin America has being rising (see the figure where data covers until October 2008). Most probably this is because of backward looking expectations embedded in wage contracts, price adjustments and rules for regulated prices and because the depreciation of the exchange rates has offset the drop in dollar-measured imported inflation.