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Inflation Targeting in Colombia, 2002-2012

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  • Franz Hamann

    ()

  • Marc Hofstetter

    ()

  • Miguel Urrutia

    ()

Abstract

After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. We examine the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. We study the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, we estimate a small-scale open-economy-policy-model. Classification JEL: E02, E32, E42, E43, E52, E58, E61, F31, F33, F42.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 818.

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Length: 43
Date of creation: May 2014
Date of revision:
Handle: RePEc:bdr:borrec:818

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  1. Kristin J. Forbes & Francis E. Warnock, 2011. "Capital Flow Waves: Surges, Stops, Flight, and Retrenchment," NBER Chapters, National Bureau of Economic Research, Inc, in: Global Financial Crisis National Bureau of Economic Research, Inc.
  2. Niamh Sheridan & Laurence M. Ball, 2003. "Does Inflation Targeting Matter?," IMF Working Papers 03/129, International Monetary Fund.
  3. Andrés Gonzalez & Franz Hamann, 2011. "Lack of Credibility, Inflation Persistence and Disinflation in Colombia," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
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  5. Lubik, Thomas A. & Schorfheide, Frank, 2003. "Computing sunspot equilibria in linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(2), pages 273-285, November.
  6. Martha Rosalba Lopezpiñeros, 2004. "Efficient Policy Rulefor Inflation Targeting Incolombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, BANCO DE LA REPÚBLICA - ESPE.
  7. Javier Gómez & Juan Manuel Julio, 2003. "Transmission Mechanism and Inflation Targeting: The Case of Colombia's Desinflation," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 18(2), pages 109-133, December.
  8. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, Elsevier, vol. 85(1-2), pages 312-318, February.
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  10. Yanneth Rocío Betancourt & Hernando Vargas, . "Encajes bancarios y la estrategia de inflación objetivo," Borradores de Economia 533, Banco de la Republica de Colombia.
  11. Guillermo A. Calvo & Alejandro Izquierdo & Rudy Loo-Kung, 2012. "Optimal Holdings of International Reserves: Self-Insurance against Sudden Stop," NBER Working Papers 18219, National Bureau of Economic Research, Inc.
  12. Nicolás De Roux & Marc Hofstetter, 2012. "Sacrifice Ratios and Inflation Targeting: The Role of Credibility," DOCUMENTOS CEDE, UNIVERSIDAD DE LOS ANDES-CEDE 009325, UNIVERSIDAD DE LOS ANDES-CEDE.
  13. Olivier Jeanne & Romain Rancière, 2011. "The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(555), pages 905-930, 09.
  14. Franz Hamann Salcedo & Juan Manuel Julio & Paulina Restrepo, . "Inflation Targeting in a Samll Open Economy: The Colombian Case," Borradores de Economia 308, Banco de la Republica de Colombia.
  15. Brito, Ricardo D. & Bystedt, Brianne, 2010. "Inflation targeting in emerging economies: Panel evidence," Journal of Development Economics, Elsevier, Elsevier, vol. 91(2), pages 198-210, March.
  16. International Monetary Fund, 2011. "Foreign Exchange Intervention," IMF Working Papers 11/165, International Monetary Fund.
  17. Lin, Shu & Ye, Haichun, 2009. "Does inflation targeting make a difference in developing countries?," Journal of Development Economics, Elsevier, Elsevier, vol. 89(1), pages 118-123, May.
  18. Lin, Shu & Ye, Haichun, 2007. "Does inflation targeting really make a difference? Evaluating the treatment effect of inflation targeting in seven industrial countries," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(8), pages 2521-2533, November.
  19. Paulina Restrepo Echavarría, 2005. "Disinflation Costs Under Inflation Targeting In A Small Open Economy," BORRADORES DE ECONOMIA 002374, BANCO DE LA REPÚBLICA.
  20. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(10), pages 1405-1423, September.
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