A Comparison of Product Price Targeting and Other Monetary Anchor Options for Commodity Exporters in Latin America/Comment

In perhaps no other region have attitudes with respect to nominal anchors for monetary policy evolved more than in the developing countries of the Western Hemisphere. Inflation rates went very high in the early 1980s -- to hyperinflation in some cases (for example, Argentina, Bolivia, Brazil, and Nicaragua). As a result, the need for a nominal anchor was apparent. In a nonstochastic model, any nominal variable is as good a choice for monetary anchor as any other. But in a stochastic model, and moreover in the real world, the nominal variable that monetary authorities choose and publicly commit to in advance makes quite a difference. When stabilization was finally achieved in the countries of Latin America and the Caribbean in the 1980s and early 1990s, the exchange rate was virtually always used as the nominal anchor with which to build the successful stabilization programs. This was true whether it was Chile's tablita, Bolivia's exchange rate target, Argentina's convertibility plan, or Brazil's real plan.