Thus, it is not surprising that Puerto Rico did not see the sharp spike in loan delinquencies that many areas saw from late 2007 to early 2009. Instead, Puerto Rico’s delinquencies on household debt – that is, the proportion of debt where payments are 90 or more days late – have risen gradually as the recession has persisted. In 2005, households were behind on about 5 percent of the total debt. As of 2010, they were delinquent on about 9 percent of the debt, about the same as the national average – reflecting the stress imposed on many families by the deep and long recession. The outlook and exports Looking ahead to the rest of 2011, I see grounds for cautious optimism. In particular, exports, which have been so important to the economic recovery on the mainland, have the potential to contribute to growth here in Puerto Rico as well. Currently, Puerto Rico runs a sizeable trade surplus, selling more products to the world than it buys. In 2009, the latest year for which full-year data are reported, the value of exports was roughly $ billion compared with roughly $ billion of imports. Based on data through November, exports grew briskly, by about 10 percent, in 2010. What does Puerto Rico export? Pharmaceuticals are by far the island’s largest export. In addition, Puerto Rico is a successful exporter of medical equipment, computer and electronic products, and electrical equipment.
Although I see why it is difficult to define inflation targeting, I consider the definition given by Ben Bernanke as being the appropriate one. Accordingly, inflation targeting is “a framework for monetary policy characterised by the public announcement of official quantitative targets […] for the inflation rate over one or more time horizons, and by explicit acknowledgement that low, stable inflation is monetary policy’s primary long-run goal. Among other important features of inflation targeting are vigorous efforts to communicate with the public about the plans and objectives of the monetary authorities, and, in many cases, mechanisms that strengthen the central bank’s accountability for attaining these objectives.” The definition can be wrapped up by adding instrument independence for the Central Bank and the lack of an explicit intermediate target, as all factors affecting inflation are taken into consideration. An important feature of inflation targeting is the need for accountability of the central bank. Within the inflation targeting framework, this is enhanced by the public announcement and commitment to attain an inflation target. The explicit target and the public and transparent nature of inflation targeting also enable the central bank to withstand political pressures more easily and to overcome the so-called time inconsistency problem. In this sense, as Frederic Mishkin1 argues, central bank independence and inflation targeting are mutually reinforcing. Adopting inflation targeting is not just a matter of choice, but also of fulfilling a number of key requirements.