A Monetary and Fiscal History of Latin America, 1960–2017

"They also start with Friedman and Schwartz and say, ‘Okay, Friedman and Schwartz did a great job, given the state of knowledge at the time. However, if we care about inflation, we should not only look at the monetary side, but also at the fiscal side.’ So they look at the history of a lot of South American countries where inflation has been very high. Inflation there has been disruptive. They try to connect these fluctuations in inflation with output and they argue that it is the joint conduct of fiscal and monetary policy that makes inflation take off, that it is the mismanagement of both that make for big fluctuations. As in the Bernanke and co-authors book, they look at different countries. What is nice is that in every chapter you have an economist, an expert on that country, writing the story and they give you a lot of data about each specific country. Then, at the end of each chapter, there are discussions with other economists, saying what they think is good and what they think is improvable about the chapter. It’s easy to read and very interesting and it makes comparisons between countries easy. It is important to look at Latin America if we want to understand inflation. Indeed, in the USA and Europe inflation has been stable from the ’90s to 2008. After 2008, these countries witnessed a prolonged period of low inflation. But inflation in Latin America has been consistently higher than in Europe and in the USA. Therefore, if we want to understand more about inflation, we should look at the experience of such countries. Paradoxically, in Europe and in the USA, we have spent a lot of time looking for inflation, and actually worrying that we might be facing deflation, especially after 2008. So, central banks tried their best to engineer expansionary monetary policies, being creative with new tools like quantitative easing—QE—and forward guidance. Despite this, inflation was below target for many years. Now, finally, we have a little bit of inflation again, but we have this after spending 10 years with a 1% inflation rate. We were not scared then, but now we have 5% and we are freaking out a little bit."