As the U.S. economy continues to grow and the labor market tightens, there is an increasing likelihood that the Federal Reserve will raise interest rates. The consequences will reverberate in Latin America and the Caribbean. Our research suggests there are reasons for concern, but also ways countries can offset the risks. It is key that countries in the region take this … [Read more...] about How Vulnerable Are Latin American and Caribbean Economies to a Sudden Stop in Capital Flows?
The real exchange rate — or the cost of a country’s goods relative to foreign goods — has long been a fundamental measure of the strength of a nation's importers and exporters. Among important commodity exporters in Latin America, it is closely tied to the price of commodities. But commodity prices aren't only essential for Latin American trade. Given their critical role as … [Read more...] about A New Look at Real Exchange Rates
On November 2, 2017, the Bank of England increased its policy interest rate from 0.25% to 0.5%. At the same time, it issued the sternest warning yet that Brexit would have a negative impact on the economy. The statement made the markets think that the economy was weaker than previously thought, or that the Bank of England might be more dovish than expected in the future. The … [Read more...] about Rethinking Inflation Targeting: What Do the UK and Latin America Have in Common?
As the October 2017 meetings in Washington wind down, the good news is that Latin America and the Caribbean is out of recession and set to grow at 1.2% this year. Only three countries (Suriname, Trinidad and Tobago and Venezuela—of the 26 borrowing IDB members) will post negative growth, as opposed to seven countries last year (the other four in recession last year were … [Read more...] about Macroeconomic Challenges for Latin America and the Caribbean
By Andrés Fernández, Daniel Hernaiz and Andrew Powell Most of the largest economies in Latin America have adopted inflation targeting . A huge advantage of having such an anchor, and not relying on a fixed exchange rate to curb diverging expectations, is that the exchange rate is then determined by the market and can adjust to shocks. Given the large shocks the region has … [Read more...] about Interest Rates are Falling, But Not So Fast