Abstract

ACEVES MEJIA, Mario  and  ABSALON COPETE, Carlos. Latin American central banks’ loss function. Inv. Econ [online]. 2025, vol.84, n.332, pp.35-60.  Epub Oct 27, 2025. ISSN 0185-1667.  https://doi.org/10.22201/fe.01851667p.2025.332.90848.

In this research, we analyze the loss function of Central Banks (CB) in Latin American economies that apply the inflation targeting model. Following Carlin and Soskice (2006, 2009 y 2024), the CB displays their preferences through a trade-off between output growth and inflation, with a strong aversion for the latter. When inflation rises above their target, CB experience microeconomic detriment, increasing their losses. Nonetheless, some institutions prioritize output gaps, showing dual objectives and aiming for a balance between inflation and growth. Our methodology employs a rolling regression model for Brazil, Chile, Colombia, and Mexico, analyzing the period 2003-2024. The main contribution of this research is to identify the preferences of the different CB that apply the inflation targeting model and to determine their level of aversion to inflation.

Keywords : Central Banks; inflation; monetary policy.

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