Central Banking during the Crisis: Performance and Challenges in La8n America José De Gregorio Universidad de Chile October 2013

Transcription

1 Central Banking during the Crisis: Performance and Challenges in La8n America José De Gregorio Universidad de Chile October 213 * Presented at the conference Central Bank Independence Progress and Challenges, to commemorate the 2th anniversary of the autonomy of the Bank of Mexico, Ciudad de Mexico, October

2 MONETARY POLICY RESPONSES DURING THE CRISIS: THIS TIME WAS DIFFERENT (FOR THE FIRST TIME?)

3 GDP in three recessions: The debt crisis the Asian crisis and the Global Financial crisis (index two years before the crisis=) LaMn America Emerging Asia Advanced Economies LaMn America Emerging Asia Advanced Economies LaMn America Emerging Asia Advanced Economies (f)

4 Monetary Policy Rates in La8n America (%) 16 Brazil Chile Colombia Mexico Peru Sources: Bloomberg.

5 Fiscal Policy: Structural primary balance (% potenmal GDP) ARG BRA CHI COL MEX PERU EMEs Source: Fiscal Monitor, IMF, April 212.

6 Private Credit as Share of GDP (percentage) 16%! %! 2! 28! %! %! 8%! 6%! 4%! 2%! %! Argentina! Brazil!! Source:!IMF,!IFS.!! Chile! Colombia! Mexico!! Peru! Venezuela! LATAM! ASIA! EM.!EUROPE! G7!!

7 Exchange Rates during the Asian and the Global Financial Crisis (domesmc currency per USD, period average=) Chile (59) Brazil (61) Mexico (58) Colombia (58) Chile (25) Brazil (93) Mexico (32) Colombia (56) /8 3/8 5/8 7/8 9/8 11/8 1/9 3/9 5/9 7/9 9/9 11/9 1/98 3/98 5/98 7/98 9/98 11/98 1/99 3/99 5/99 7/99 9/99 11/99 Source: Bloomberg. Figures in brackets indicates depreciamon from bo_om to top. An increase indicates a depreciamon of the currency.

8 Interna8onal Reserves Now and Then (index, period average=) Brazil Chile Colombia Mexico

9 Monetary policy rates Now and Then (%) Brazil Chile Colombia 7 6 Mexico

10 CHALLENGES FOR CENTRAL BANKING

11 On Monetary Policy Flexible IT has worked quite well, and allowed major loosening of MP during the crisis. It played a secondary role as a cause of the financial crisis. Exchange rate flexibility is central to good MP. ExcepMonal forex intervenmons are part of the toolkit and useful in certain circumstances, but Avoid fear of floamng and intervenmon addicmon, it provides inefficient insurance (lack of commitment) and create incenmves to speculate against the central bank.

12 On Financial Stability and Macropruden8al policies The financial stability objecmve is not new in the region. Central banks have always played a key role in previous financial crisis. Monetary policy is not the appropriate tool to deal with a financial crisis. MacroprudenMal policies. But what are they? What is their difference with microprudenmal? Instruments are mostly the same. Perhaps differences in variability of regulatory parameters over the business cycle.

13 On Financial Stability and Macropruden8al policies Risk 1: controlling excessively banking acmvimes may induce shadow banking. Risk 2: it is a complement of monetary policy, but not a subsmtute. Risk 3: use MAPP terminology to do any kind of policies. It is not a fancy name for things that have been tradimonally done, e.g., capital controls. Good communicamon becomes central to avoid misuse of terms and policy confusion.

14 On Communica8on, Transparency and Accountability Central bank independence has gained legimmacy during the crisis. It has been shown that flexible IT does not care only about inflamon. It is designed to manage efficiently the short- run tradeoff between inflamon and unemployment. Transparency is central for: accountability, monitoring of the fulfillment of the target, and to improve the workings of monetary policy

15 On Current Developments in Emerging Markets At the beginning of the year we were facing a currency war fought, in some countries, with reserves accumulamon and macroprudenmal policies. Now the tension is with tapering: Taper the tapering because of repercussion effects. The slowdown is underway, sonening of capital inflows and depreciamon of the currencies is a good thing. Beware of fear of floamng and beware of abandoning flexible inflamon targemng.