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New supply shocks, same monetary policy: The need for microeconomic indicators of inflation in Latin America
Keywords:
microeconomic data, supply shocks, inflation decomposition, seller’s inflation, Latin AmericaAbstract
Since 2021, Latin America has experienced inflationary phenomena to which Central Banks have responded using their inflation targeting frameworks. However, the fact that the main drivers of these price increases may have been supply shocks not only calls into question the effectiveness of measures such as interest rate hikes but also revives the debate on their negative impacts on the productive fabric and the functional distribution of income. In this context, this paper argues for the need for macroeconomic indicators to measure and decompose inflationary impulses in the region, which would enable monetary authorities to differentiate their policy strategies in response to price level changes originating from asymmetric sources. Data from Mexico, Colombia, Brazil, Chile, Paraguay, and Peru are analyzed, concluding that there do not appear to be nuances in the interest rate reactions of the region’s central banks regarding the origin of inflation.
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