February 11, 2005The Federal Reserve is justly proud of its success in reducing and stabilizing inflation in the United States. When Paul Volcker became Fed chainnan twenty-five years ago, Americans were enduring double-digit inflation rates and subpar economic perfonnance. Under the leadership of Volcker and, subsequently, Alan Greenspan, the Federal Open Market Committee took the actions necessary to bring the nation to price stability. In my view, the conquest of inflation has been a major source of the more-rapid economic growth and the greater stability of output and employment that the United States has enjoyed since the mid-1980s (Bernanke, 2004). Impressive as the Fed's inflation-fighting accomplishments may be, however, inflation developments to our south, in Latin America, may prove to be more impressive yet. For much ofthe latter half ofthe twentieth century, Latin America experienced recurrent bouts of high inflation together with erratic growth and periods of economic and financial crisis. Since the mid-1990s, however, inflation rates in virtually all of Latin America have come down dramatically, to the single digits in most cases. What explains this remarkable turnaround? Will Latin American progress o
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