ABSTRACT
The political transition that followed in 1990 witnessed an economic transition, in that the new democratically elected authorities chose to maintain the main features of the economic system put in place by the military government. The move towards a floating scheme and a formal inflation targeting framework cannot but be interpreted as a change towards a more flexible arrangement. The Central Bank must work towards achieving a good communication with the public. This is crucial, due to the fact that the Bank must explain how its current monetary policy stance is consistent with the fulfillment of its Constitutional objectives, and why the inflation forecasts at less than the 24 month horizon might differ from the target. The Central Bank of Chile has considered that using a policy rule can be a confusing exercise, and has opted instead for the more transparent approach consisting of a constant policy rate for duration of forecast horizon, that then moves to a policy rule.
