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Reconstructing the recent monetary policy history of Colombia from 1990 to 2010

Author

Listed:
  • Andrés Felipe Giraldo
  • Martha Misas Arango
  • Edgar Villa Pérez

Abstract

This article reconstructs the history of monetary policy of the central bank of Colombia inthe period 1990 to 2010 in which explicit ination targeting was adopted by October of 2000.To do so we developed theoretically a modi ed Taylor rule with interest rate smoothing foran open and small economy and accordingly estimate a two regime Markov switching modelwhich allows the switching dates to be endogenously determined. We nd that one regimehad explicit ination targeting (from the year 2000 up to 2010) in which the ination rate isa stationary series, given that the central bank enforced a monetary policy that satis ed theTaylor principle. This ination stabilizing regime did show up in some quarters before theyear 2000 but was not the predominant. The other regime was the more prevalent during the1990s but did not satisfy the Taylor principle allowing a unit root behavior of the inationrate. Moreover we nd that the central bank reacted aggressively during the 1990s to outputuctuations while having an accomodating behavior for this variable during explicit inationtargeting from 2000 onwards.

Suggested Citation

  • Andrés Felipe Giraldo & Martha Misas Arango & Edgar Villa Pérez, 2011. "Reconstructing the recent monetary policy history of Colombia from 1990 to 2010," Vniversitas Económica 8860, Universidad Javeriana - Bogotá.
  • Handle: RePEc:col:000416:008860
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    File URL: http://cea.javeriana.edu.co/documents/153049/2786252/Vol.11_6_2011.pdf/4ec84d8f-c629-4748-a677-c1610fa13ca8
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    References listed on IDEAS

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    1. Andrés Felipe Giraldo Palomino, 2008. "Aversión a la inflación y regla de Taylor en Colombia 1994-2005," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, December.
    2. Juan José Echavarría S. & Enrique López E. & Martha Misas A., 2013. "La persistencia estadística de la inflación en Colombia," Investigación Conjunta-Joint Research, in: Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), Dinámica inflacionaria, persistencia y formación de precios y salarios, edition 1, chapter 6, pages 139-182, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    3. Camacho, Maximo, 2011. "Markov-switching models and the unit root hypothesis in real US GDP," Economics Letters, Elsevier, vol. 112(2), pages 161-164, August.
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    7. Echavarría-Soto, Juan José & Rodríguez-Niño, Norberto & Rojas, Luis Eduardo, 2011. "La meta del Banco Central y la persistencia de la inflación en Colombia," Chapters, in: López Enciso, Enrique & Ramírez Giraldo, María Teresa (ed.), Formación de precios y salarios en Colombia T.1, volume 1, chapter 2, pages 47-69, Banco de la Republica de Colombia.
    8. Hall, Stephen G & Psaradakis, Zacharias & Sola, Martin, 1999. "Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(2), pages 143-154, March-Apr.
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    10. Gloria Lucía Bernal Nisperuza & Johanna Táutiva Pradere, 2008. "Relevancia de los datos en tiempo real en la estimación de la regla de Taylor para Colombia," Documentos de Economía 5421, Universidad Javeriana - Bogotá.
    11. Taylor, John B. (ed.), 2001. "Monetary Policy Rules," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226791258, December.
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    13. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    14. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    15. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, December.
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    Cited by:

    1. Andrés González & Segio Ocampo & Julián Pérez & Diego Rodríguez, 2013. "Output Gap and Neutral Interest Measures of Colombia," Monetaria, CEMLA, vol. 0(2), pages 231-286, July-Dece.
    2. Edgar Villa & Martha A. Misas & Andrés F. Giraldo, 2014. "Inflation Targeting and an Optimal Taylor Rule for an Open Economy: Evidence for Colombia 1990-2011," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 51(1), pages 41-83, May.
    3. Echavarría-Soto, Juan José & López, Enrique & Ocampo, Sergio & Rodríguez-Niño, Norberto, 2012. "Choques, instituciones laborales y desempleo en Colombia," Chapters, in: Arango-Thomas, Luis Eduardo & Hamann-Salcedo, Franz Alonso (ed.), El mercado de trabajo en Colombia : hechos, tendencias e instituciones, chapter 18, pages 753-794, Banco de la Republica de Colombia.
    4. Federico Sturzenegger, 2019. "Macri´s Macro: The meandering road to stability and growth," Working Papers 135, Universidad de San Andres, Departamento de Economia, revised Oct 2019.

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    More about this item

    Keywords

    Taylor rule; Taylor principle; Markov Switching Model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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