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In recent times, a resurgence of monetarism took place around 1970, as United
States experienced an inflation surge, further unleashed elsewhere with the rise in
oil prices. Also, Keynesian policies as a government deficit spending appeared to
be inefficient in combating underemployment. It was upon this scenario that
monetary policy took place at the center stage. The success of the monetarist
liquidity preference theory, previously produced by Friedman in 1956, got
immediate popularity among economic practitioners and theorists as well. This
success phenomenon was the result of it being an instrument to target inflation.
Regarding the quantity theory as a policy means, the United States abolished
monetary targeting in the early 1980’s (Graff, 2008). This tendency was also
observed in México, as in 1988, reserve requirements by the central bank were
phased out (Khamis & Leone, 2001). In its place, open market operations were
established while the interest rate becomes the means for inflation targeting. In
other words, an attempt to keep inflation close to an announced target ensued.
Some authors even challenge that in the Latin American region there was an
adherence to monetary targeting, in so far as public announcement of targets and
some kind of accountability mechanism did not occur (Mishkin & Savastano, 2000).
As a result, it is not enough to use the information conveyed by the central bank to
implement a monetary policy if it lacks public transparency.
Since 1990, monetary targeting gave way to inflation targeting in an array of
industrialized countries, including Canada, United Kingdom and Switzerland. This
adoption encompassed many countries including Brazil and Chile in Latin America
as well as transition economies like Czech Republic, Hungary and Poland.