Goodbye Inflation Targeting, Hello Fear of Floating? Latin America after the Global Financial Crisis*

Reinhart, Carmen (2013): Goodbye Inflation Targeting, Hello Fear of Floating? Latin America after the Global Financial Crisis*. Forthcoming in: Ernesto Zedillo (ed.) Latin America: Taking Off or Still Falling Behind. (2013)

Abstract

This paper focuses on some of the macroeconomic risks that lie ahead for Latin America. The discussion is informed by my work on crises and capital flows and their macroeconomic consequences. The trends and initial conditions that allowed the region to weather the global economic storm of 2008-2009 are discussed, as is the subsequent reversal of some of those benign trends. I review the historical patterns connecting large capital inflow surges, or “capital flow bonanzas,” with the likelihood of a variety of crises—banking, currency, external default and inflation. For Latin America, in particular, large capital flow bonanzas have seldom ended well. The implications for inflation of importing (via less than fully flexible exchange rates) the expansionary policy of the “North” are discussed.

• Item Type: MPRA Paper
• Language: English
• Keywords: capital inflows, appreciation, currency crises, banking crises, inflation, debt
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; F - International Economics > F3 - International Finance; F - International Economics > F3 - International Finance > F30 - General; G - Financial Economics > G0 - General > G01 - Financial Crises; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N16 - Latin America ; Caribbean; N - Economic History > N2 - Financial Markets and Institutions > N26 - Latin America ; Caribbean

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