Monetary Policy and Inflation Targets in Chile

This article examines monetary policy conduct in Chile within the context of the inflation-targeting regime adopted in 1990, analyzing its impact on price stability and the credibility of the central bank. The study focuses on identifying the relationship between annual inflation targets and inflation forecasts, using historical data from the start of the regime through 1999. The methodology employs vector autoregressive (VAR) models to compare inflation forecasts before and after the establishment of the targets. The results indicate that the adoption of the inflation-targeting regime has been effective in reducing inflation expectations, with observed inflation consistently below previous forecasts. This finding suggests that the regime has served as a mechanism for consolidating credibility and communicating monetary policy, contributing to a gradual and sustained decline in inflation without incurring significant costs to economic growth. The macroeconomic implications highlight the importance of nominal anchoring for price stability and the design of effective monetary policies in contexts of high indexation. (Abstract and audio: Department of Economic Publications)