02079cas a2200253 a 4500 AALejournalIMF009224 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451866186 1018-5941 BD-DhAAL BD-DhAAL Parrado, Eric. The Quest for Price Stability in Central America and the Dominican Republic* / Eric Parrado, Luis Jacome. Washington, D.C. : International Monetary Fund, 2007. 1 online resource (34 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper addresses the question of why inflation has not yet converged to price stability in Central America and the Dominican Republic and is currently relatively high by Latin American standards. It suggests that despite the institutional strengthening of monetary policy, important flaws remain in most central banks, in particular a lack of a clear policy mandate and little political autonomy, which are adversely affecting the consistency of policy implementation. Empirical analysis reveals that all central banks raise interest rates to curtail inflation but only some of them increase it sufficiently to effectively tackle inflation pressures. It also shows that some central banks care simultaneously about exchange rate stability. The potential policy conflict arising from a dual central bank mandate and the unpredictable policy response is probably undermining markets' confidence in central banks' commitment to price stability, thereby perpetuating an inflation bias. Mode of access: Internet Jacome, Luis. IMF Working Papers; Working Paper ; No. 2007/054 Full text available on IMF http://elibrary.imf.org/view/journals/001/2007/054/001.2007.issue-054-en.xml IMF e-Library