Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper reviews the nature of central bank involvement in 26 episodes of financial disturbance and crises in Latin America from the mid-1990s onwards. It finds that, except in a handful of cases, large amounts of central bank money were used to cope with large and small crises alike. Pouring central bank money into the financial system generally derailed monetary policy, fueled further macroeconomic unrest, and contributed to simultaneous currency crises, thereby aggravating financial instability. In contrast, when central bank money issuance was restricted and bank resolution was timely executed, financial disturbances were handled with less economic cost. However, this strategy worked provided appropriate institutional arrangements were in place, which highlights the importance of building a suitable framework for preventing and managing banking crises.

Financial crises --- Monetary policy --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Banks and Banking --- Financial Risk Management --- Money and Monetary Policy --- Financial Crises --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Institutions and Services: Government Policy and Regulation --- Economic & financial crises & disasters --- Banking --- Monetary economics --- Banking crises --- Monetary base --- Bank resolution --- Banks and banking --- Money supply --- Crisis management --- Ecuador

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper stresses three factors that amplified the 1990s financial crisis in Ecuador, namely institutional weaknesses, rigidities in public finances, and high financial dollarization. Institutional factors restricted the government's ability to respond in a timely manner and efficiently enough to prevent the escalation of the banking crisis and spurred the adoption of suboptimal policy decisions. Public finance rigidities limited the government's capacity to correct existing imbalances and the deteriorating fiscal stance associated with the costs of the financial crisis. Financial dollarization increasingly reduced the effectiveness of financial safety nets, fostered foreign currency demand, and accelerated a currency crisis, thereby further worsening the solvency of banks. These three factors reinforced each other, exacerbating costs as the economy went through a triple banking, currency, and fiscal crisis.

Financial crises --- Fiscal policy --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Government policy --- Ecuador --- Economic conditions --- Banks and Banking --- Financial Risk Management --- Money and Monetary Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Economic History: Government, War, Law, and Regulation: Latin America --- Caribbean --- Economywide Country Studies: Latin America --- Financial Crises --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary Policy --- Economic & financial crises & disasters --- Banking --- Monetary economics --- Banking crises --- Currencies --- Bank deposits --- Money --- International reserves --- Central banks --- Dollarization --- Monetary policy --- Banks and banking --- Foreign exchange reserves

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper reviews central bank legislation in 24 countries in Latin America and the Caribbean during the 1990s. Using panel regressions, we find a negative relationship between legal central bank independence (CBI) and inflation. This result holds for three alternative measures of CBI and after controlling for international inflation, banking crises, and exchange regimes. The result is also robust to the inclusion of a broader indicator of structural reforms that usually go along with changes in central bank legislation, illustrating the complementary nature of various aspects of economic reform. The paper fails, however, to find a causal relationship running from CBI to inflation.

Banks and banking, Central -- Caribbean Area. --- Banks and banking, Central -- Latin America. --- Electronic books. -- local. --- Inflation (Finance) -- Caribbean Area. --- Inflation (Finance) -- Latin America. --- Banks and Banking --- Inflation --- Macroeconomics --- Public Finance --- Price Level --- Deflation --- Central Banks and Their Policies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Institutions and the Macroeconomy --- Taxation, Subsidies, and Revenue: General --- Banking --- Public finance & taxation --- Central bank autonomy --- Structural reforms --- Legal support in revenue administration --- Prices --- Banks and banking --- Revenue --- Ecuador

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper identifies key aspects that countries willing to officially dollarize must necessarily address. Based on country experiences, it discusses the critical institutional bases that are necessary to unilaterally introduce a new legal tender, describes the relevant operational issues to smooth the transition toward the use of the new currency, and identifies key structural reforms that are necessary to favor the sustainability over time of this monetary regime. The paper is aimed at providing preliminary guidance to policy makers and practitioners adopting official dollarization. The paper does not take a position on how appropriate this monetary arrangement is. Experiences from adopting dollarization in Ecuador, El Salvador, Kosovo, Montenegro, and Timor-Leste are illustrated briefly.

Banks and Banking --- Financial Risk Management --- Inflation --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Crises --- Price Level --- Deflation --- Monetary economics --- Banking --- Economic & financial crises & disasters --- Macroeconomics --- Currencies --- Dollarization --- Financial crises --- Money --- Monetary policy --- Banks and banking --- Prices --- El Salvador

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

We study the link between central bank independence and inflation by providing narrative and empiricial evidence based on Latin America’s experience over the past 100 years. We present a novel historical dataset of central bank independence for 17 Latin American countries and recount the rocky journey traveled by Latin America to achieve central bank independence and price stability. After their creation as independent institutions, central bank independence was eroded in the 1930s at the time of the Great Depression and following the abandonement of the gold exchange standard. Then, by the 1940s, central banks turned into de facto development banks under the aegis of governments, sawing the seeds for high inflation. It took the high inflation episodes of the 1970s and 1980s and the associated major decline in real income, and growing social discontent, to grant central banks political and operational independence to focus on fighting inflation starting in the 1990s. The empirical evidence confirms the strong negative association between central bank independence and inflation and finds that improvements in independence result in a steady decline in inflation. It also shows that high levels of central bank independence are associated with reductions in the likelihood of high inflation episodes, especially when accompanied by reductions in central bank financing to the central government.

Macroeconomics --- Economics: General --- Banks and Banking --- Inflation --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Central Banks and Their Policies --- Economic History: Macroeconomics --- Growth and Fluctuations: Latin America --- Caribbean --- Price Level --- Deflation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Banking --- Monetary economics --- Central bank autonomy --- Central banks --- Prices --- Central bank legislation --- Bank credit --- Money --- Central bank organization --- Currency crises --- Informal sector --- Economics --- Credit --- Argentina