Advanced Search
MyIDEAS: Login

Lack of Credibility, Inflation Persistence and Disinflation in Colombia

Contents:

Author Info

  • Andrés González G.

    ()

  • Franz Hamann

    ()

Abstract

This paper measures inflation persistence in Colombia for the period 1990-2010 and estimates the implied speed at which agents learn about the central bank’s inflation target. We estimate Erceg and Levin’s (2003) imperfect credibility model using Bayesian techniques and compare the posterior odds of this model against a conventional Neokeynesian model with ad-hoc price indexation. The odds are strongly in favor of the imperfect credibility model, suggesting that lack of credibility on the inflation target is an important source of inflation persistence. We use the model to compute the sacrifice ratio associated to 100 basis points inflation target shocks and find that it is (0.83%) in line with previous estimates for Colombia. We also find that the speed at which agents learn in the model has increased, albeit marginally, since the central bank implemented its inflation targeting strategy. Although during this period macroeconomic volatility has fallen, inflation persistence has remained roughly constant suggesting that so far, the impact of those credibility gains has been modest.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.banrep.gov.co/docum/ftp/borra658.pdf
Download Restriction: no

Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 008737.

as in new window
Length: 31
Date of creation: 26 May 2011
Date of revision:
Handle: RePEc:col:000094:008737

Contact details of provider:

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Clark, Peter K., 1989. "Trend reversion in real output and unemployment," Journal of Econometrics, Elsevier, vol. 40(1), pages 15-32, January.
  2. Bernal Raquel, 2003. "Monetary Policy Rules in Colombia," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  3. Harvey,Andrew C., 1990. "Forecasting, Structural Time Series Models and the Kalman Filter," Cambridge Books, Cambridge University Press, number 9780521321969, December.
  4. Sharon Kozicki & P.A.Tinsley, 2001. "What do you expect? : imperfect policy credibility and tests of the expectations hypothesis?," Research Working Paper RWP 01-02, Federal Reserve Bank of Kansas City.
  5. Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," CEPR Discussion Papers 4334, C.E.P.R. Discussion Papers.
  6. Carlos Capistrán & Manuel Ramos-Francia, 2009. "Inflation Dynamics In Latin America," Contemporary Economic Policy, Western Economic Association International, vol. 27(3), pages 349-362, 07.
  7. Javier Gómez & Juan Manuel Julio, 2001. "Transmission Mechanism And Inflation Targeting: The Cese Of Colombia'S Disinflation," BORRADORES DE ECONOMIA 003656, BANCO DE LA REPÚBLICA.
  8. Carlos Robalo Marques, 2005. "Inflation persistence: facts or artefacts?," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  9. Matteo Ciccarelli & Beno�t Mojon, 2010. "Global Inflation," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 524-535, August.
  10. Corvoisier, Sandrine & Mojon, Benoît, 2005. "Breaks in the mean of inflation: how they happen and what to do with them," Working Paper Series 0451, European Central Bank.
  11. Andrés González G. & Franz Hamann, 2011. "Lack of Credibility, Inflation Persistence and Disinflation in Colombia," BORRADORES DE ECONOMIA 008737, BANCO DE LA REPÚBLICA.
  12. Pau Rabanal & Juan Rubio-Ramírez, 2008. "Comparing new Keynesian models in the Euro area: a Bayesian approach," Spanish Economic Review, Springer, vol. 10(1), pages 23-40, March.
  13. Martha Misas A. & Enrique López E. & Juan Carlos Parra A., . "La formación de precios en las empresas colombianas: evidencia a partir de una encuesta directa," Borradores de Economia 569, Banco de la Republica de Colombia.
  14. Hofstetter, Marc, 2008. "Disinflations in Latin America and the Caribbean: A free lunch?," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 327-345, March.
  15. José Daniel REYES PEÑA, 2003. "The cost of disinflation in Colombia: -A sacrifice Ratio Approach-," ARCHIVOS DE ECONOMÍA 003579, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  16. Filippo Altissimo & Valentina Corradi, 2000. "Strong Rules for Detecting the Number of Breaks in a Time Series," Econometric Society World Congress 2000 Contributed Papers 0574, Econometric Society.
  17. Altissimo, Filippo & Corradi, Valentina, 2003. "Strong rules for detecting the number of breaks in a time series," Journal of Econometrics, Elsevier, vol. 117(2), pages 207-244, December.
  18. Boschen, John F. & Weise, Charles L., 2001. "The Ex Ante Credibility of Disinflation Policy and the Cost of Reducing Inflation," Journal of Macroeconomics, Elsevier, vol. 23(3), pages 323-347, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ludek Niedermayer, 2008. "Notes on the monetary transmission mechanism in the Czech economy," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 213-219 Bank for International Settlements.
  2. Hernando Vargas, . "The Transmission Mechanism of Monetary Policy in Colombia Major Changes and Current Features," Borradores de Economia 431, Banco de la Republica de Colombia.
  3. Hernando Vargas, 2008. "The transmission mechanism of monetary policy in Colombia: major changes and current features," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 183-211 Bank for International Settlements.
  4. Hernando Vargas & Andrés González & Eliana González & José Vicente Romero & José Luis Eduardo Rojas, 2010. "Assessing inflationary pressures in Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 129-171 Bank for International Settlements.
  5. Hernando Vargas & Andrés González & Ignacio Lozano, 2012. "Macroeconomic Effects of Structural Fiscal Policy Changes in Colombia," BORRADORES DE ECONOMIA 009314, BANCO DE LA REPÚBLICA.
  6. Andrés González G. & Franz Hamann, 2011. "Lack of Credibility, Inflation Persistence and Disinflation in Colombia," BORRADORES DE ECONOMIA 008737, BANCO DE LA REPÚBLICA.
  7. NGUENA, Christian L., 2012. "Objectif de Lutte contre l’Inflation et Croissance Economique en Afrique: la Nécessité d’une Alternative
    [Fighting against Inflation and economic growth in Africa: A necessity of alternative]
    ," MPRA Paper 49416, University Library of Munich, Germany, revised 19 Apr 2013.
  8. Hernando Vargas H., 2007. "The Transmission Mechanism of Monetary Policy in Colombia Major Changes and Current Features," BORRADORES DE ECONOMIA 003630, BANCO DE LA REPÚBLICA.
  9. NGUENA, Christian L., 2012. "Objectif de Stabilité des Prix et Croissance Economique en Zone CEMAC: Une Approche en Données de Panel
    [Price Stability Objectives and Economic Growth: A Panel Data Econometrics Empirical Invest
    ," MPRA Paper 49412, University Library of Munich, Germany, revised 09 Feb 2013.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:col:000094:008737. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Norma Judith Paternina).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.