Transmission Mechanisms and Monetary Policy Rules: The Position of Monetary Policy as a State Variable

This article examines the requirements and transmission mechanisms necessary to implement an effective monetary policy in developing countries, with a particular focus on Peru. The main research question is how to reconcile the price stability mandate with the goal of maximizing social welfare in the short run. Using an approach based on disciplined discretion rather than a formal inflation-targeting framework, the article analyzes the practical requirements for central banks to respond appropriately to changes in inflation expectations. The methodology employed includes minimal state space models (MSSMs), which allow for a structural interpretation and statistical robustness in the evaluation of monetary policy. The results show that variables related to short-term monetary management are key to predicting inflation and devaluation, with an emphasis on the BCRP’s Certificate of Deposit interest rate as the primary policy instrument. The policy implications suggest that a systematic and communicative approach enhances the credibility and effectiveness of monetary policy in contexts of high uncertainty. (Abstract and audio: Department of Economic Publications)