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October 31, 2022

GAI Director Alejandro Werner Shares Thoughts About Inflation in Latin America

On October 18, Georgetown Americas Institute (GAI) Founding Director Alejandro Werner featured in a Financial Times article on inflation in Latin America’s strategies to handle inflation and potential lessons for the G7.

Brazil's Central Bank
Brazil's Central Bank

Central banks in the United States and Europe are struggling to fight high inflation, while Latin America’s central banks have already acted decisively and are now enjoying the rewards, the FT contributor Michael Stott writes.

Alejandro Werner believes that G7 central banks depend too much on flawed economic models.  

We are much more model-based in the advanced economies, and when you put into your model twenty-five years of data, in which inflation has been around two per cent, whatever you put on the independent variable side will not give you an inflation rate that is much higher than the 2.5 per cent… the data you feed the model is giving you an answer that leads to​complacency.

On the other hand, Latin American central banks also use models “but they also use their experience, and their experience of inflation is much more recent.”

Latin American bankers have experienced the threat of inflation in a different way than their European counterparts, which could give the G7 valuable insight on how to handle their own crises.