Argentina's failed attempt at an inflation targeting regime : an analysis of three emerging market economies

Abstract

Recent research suggests that fiscal dominance is an important factor when evaluating the success of Inflation Targeting regimes, given that monetary policy is subordinated to fiscal needs. Moreover, emerging markets economies have generally a higher pass-through rate than developed economies, which affects how external markets, and mainly exchange rates, impact on a country's inflation. This Thesis proposes that these are important components when discussing an inflation targeting regime and its recent failure in Argentina. The Thesis also shows that, it is possible to find very different performances across IT regimes around the world. We present a comparative analysis between three Latin American countries (Argentina, Chile, and Peru) to further analyze how particularities within the Emerging Market Economies affect the impact of inflation targets in each situation, and finally propose what we have learned from Argentina´s recent failure where fiscal dominance and a high inflationary basis are part of the economic picture.