Description

The Central Bank of Chile was granted full autonomy by a Constitutional Organic Law enacted in 1989. In this paper we conduct a selective review of theoretical and empirical literature on the macroeconomic performance and autonomy of the Central Bank, presenting new evidence of the relationship between said autonomy and the coefficient of passthrough from the exchange rate to inflation. Then we analyze, from various standpoints, how the autonomy has functioned in practice in Chile, what were the issues in discussion before its adoption and how these have unfolded afterwards. We also compare the autonomy of the Central Bank of Chile with that of other central banks and we examine the role played by central banks’ capital. From the analysis we conclude that the Central Bank of Chile’s experience with autonomy has had very positive results.