Assessing Inflation Targeting in Latin America With a DSGE Model

In this paper we assess Inflation Targeting with a unique treatment and control group of strictly Latin American countries. We estimate a small Dynamic Stochastic General Equilibrium model to determine whether economic behavior within an economy fundamentally changes under Inflation Targeting. We find that although Inflation Targeting central banks appear to be if anything, slightly more aggressive in responding to inflation than Non-Inflation Targeting central banks, this has not resulted in more forward looking inflation expectations by economic agents.