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Efficient Policy Rulefor Inflation Targeting Incolombia

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  • MARTHA ROSALBA LOPEZPIÑEROS

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Abstract

In a small macroeconomic model of the Colombian economy I investigate the problem of selecting an efficient simple policy rule – rules that exploit a reduced information set-that is consistent with inflation targeting. Even though simple policy rules are not as efficient as the optimal state-contingent policy rules, in the literature it has been shown that some simple rules can approximate them very well. I spell out the characteristics of the feedback and output parameters in simple Taylor and Inflation-forecast rules, as well as the optimal forecasting horizon for inflation targeting. Using stochastic simulations of the model it is found that, as expected, simple rules that use forecasts of inflation rather than just contemporaneous inflation have better stabilization properties.

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Bibliographic Info

Article provided by BANCO DE LA REPÚBLICA - ESPE in its journal ENSAYOS SOBRE POLÍTICA ECONÓMICA.

Volume (Year): (2004)
Issue (Month): ()
Pages:

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Handle: RePEc:col:000107:002438

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  1. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  2. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
  3. Svensson, Lars E.O. & Rudebusch , Glenn, 1998. "Policy Rules for Inflation Targeting," Seminar Papers 637, Stockholm University, Institute for International Economic Studies.
  4. Bennett T. McCallum & Edward Nelson, 2000. "Nominal Income Targeting in an Open-Economy Optimizing Model," NBER Working Papers 6675, National Bureau of Economic Research, Inc.
  5. Jeffrey C. Fuhrer, 1994. "Goals, guidelines, and constraints facing monetary policymakers: an overview," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-15.
  6. Andrew G. Haldane & Nicoletta Batini, 1998. "Forward-Looking Rules for Monetary Policy," NBER Working Papers 6543, National Bureau of Economic Research, Inc.
  7. Nicoletta Batini & Edward Nelson, 1999. "Optimal Horizons for Inflation Targeting," Computing in Economics and Finance 1999 1052, Society for Computational Economics.
  8. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
  9. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 97-116, Spring.
  10. Drew, Aaron & Hunt, Benjamin, 2000. "Efficient simple policy rules and the implications of potential output uncertainty," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 143-160.
  11. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
  12. Javier Gómez & José Darío Uribe & Hernando Vargas, 2002. "The Implementation Of Inflation Targeting In Colombia," BORRADORES DE ECONOMIA 003603, BANCO DE LA REPÚBLICA.
  13. repec:fip:fedfap:2000-20 is not listed on IDEAS
  14. John B. Taylor, 1994. "The inflation/output variability trade-off revisited," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 21-24.
  15. Robert G. King, 1995. "Quantitative theory and econometrics," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 53-105.
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Cited by:
  1. Daniel Leigh, 2008. "Achieving a Soft Landing: The Role of Fiscal Policy," IMF Working Papers 08/69, International Monetary Fund.
  2. Juan Manuel Julio Román, . "The Monetary Policy Rule During The Transition To A Stable Level Of Inflation: The Case Of Colombia," Borradores de Economia 404, Banco de la Republica de Colombia.
  3. Gloria Lucía Bernal Nisperuza & Johanna Táutiva Pradere, 2011. "Datos en tiempo real:una aplicación a la regla de taylor en Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 13(24), pages 373-394, January-J.

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