Can balance-of-payments constrained economies pursue inflation targeting? A look at the case of Chile

Resumen

The economic performance of small economies is dtermined to a greater extent by the existing financial architecture. The current financial system is anchored on the United States dollar and countries that do not issue the reserve currency, especially small open economies, must be able to acquire, and indeed accumulate, the currency they cannot issue ti pay for their imports and to carry other type of real and financial transactions. As a result, contries domestic policies, and in particular those of small open economies are to a greater extent shaped and constrained by their external conditions and performance. In this sense they are said to be balance-of-payments constrained.