The charts show three variables of the cycle in credit and asset prices in Latin America: the credit to GDP ratio (an approximation to leverage), the real exchange rate, and the EMBI spread. The sample can be divided into three periods: the upturn of 1990-1997 with high growth of leverage and real exchange rate appreciation, […]
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 […]
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.  The first chart shows the combined impact of the external factors of monetary policy in Latin America […]
The Taylor rule is a simple formula that can be used for an evaluation of the stance of monetary policy in any country. The Taylor rule is usually presented in terms of the nominal interest rate. However, for Latin American countries with histories of high inflation it is more practical to represent the same Taylor […]
The Economist regularly updates the so called the Big Mac index. The magazine uses McDonalds’ Big Mac hamburger of because it is a good that is relatively homogeneous internationally and hence may be used to assess the law of one price.
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**.
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.
A long and wild feast has now come to an end in the US and other advanced countries. The barmen are trying to close up but the guests have not yet paid the bill and are staggering around feeling very ill. There might be a difference between the current US recession and the one in […]
The US financial crises have raised a series of important economic and political issues. The need for foreign finance has made the US weaken its economic position in the world and has led it to contemplate opening the gates on the ownership and board membership to countries that do not fully run their economies according […]
The combination of inflation and a financial crisis in the US has complicated the outlook for dollarized countries. We can see the roller coaster that dollarized countries in particular, but also those with fixed exchange rate regimes, are now riding by looking at Panama, a country for which we have better data than for most. […]