Modelling the monetary policy reaction function of the Colombian Central Bank
AbstractThis paper proposes a simple ordered probit model to analyse the monetary policy reaction function of the Colombian Central Bank. There is evidence that the reaction function is asymmetric, in the sense that the Bank increases the Bank rate when the gap between observed inflation and the inflation target (lagged once) is positive, but it does not reduce the Bank rate when the gap is negative. This behaviour suggests that the Bank is more interested in fulfilling the announced inflation target rather than in reducing inflation excessively. The forecasting performance of the model, both within and beyond the estimation period, appears to be particularly good.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Macroeconomics and Finance in Emerging Market Economies.
Volume (Year): 2 (2009)
Issue (Month): 1 ()
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Other versions of this item:
- Jesús Otero & Manuel Ramírez Gómez, 2008. "Modeling the monetary policy reaction function of the colombian central bank," DOCUMENTOS DE TRABAJO 004650, UNIVERSIDAD DEL ROSARIO.
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