Monetary policy efficiency and the stability of Central Bank preferences: Empirical evidence for Peru

Following the work of Favero and Rovelli (2003), we estimate a system of three equations for different samples of the Peruvian economy with the aim of analyzing the evolution of the parameters associated with the monetary authority’s preferences and the structure of the economy. The results indicate that the monetary authority’s preferences have changed across the different regimes. In particular, the estimate of the implicit inflation target has declined significantly in the most recent period. On the other hand, macroeconomic conditions (as measured by the standard deviations of the shocks) on the aggregate demand side have been more favorable than those related to aggregate supply. Furthermore, the value of the standard deviation of the monetary rule suggests that it has been successfully implemented in the most recent period. (Audio: Department of Economic Publications)