Disinflating From Moderate Inflation In Latin America and The Caribbean.

Abstract

This paper studies the behavior of several macroeconomic variables

during disinflationary episodes in Latin-America and the Caribbean

(LAC). In particular, it focuses on disinflations from low and moderate

peaks for the period 1973-2001. The methodology used for studying

the average behavior of macroeconomic variables across disinflations

overcomes the traditional problem of scarce long time series (of high

frequency data) that has hindered the empirical research of monetary

shocks in many LAC countries. Some of the important findings are as

follows: (i) while GDP growth slowed down during the disinflations

of the 70s and 80s, there is no evidence of this for the 90s; (ii) the

trade balance significantly deteriorated during the disinflations; (iii)

the nominal devaluation rate slowed down during the episodes; and

(iv) the real exchange rate appreciated during the episodes.