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Efficient Policy Rule for Inflation Targeting in Colombia

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  • Martha López P.

    (Banco de la República (Colombia))

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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Suggested Citation

  • Martha López P., 2004. "Efficient Policy Rule for Inflation Targeting in Colombia," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 1-24, January-J.
  • Handle: RePEc:cml:moneya:v:xvii:y:2004:i:1:p:1-24
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    Citations

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    Cited by:

    1. Pietro Bonaldi & Andrés González & Diego Rodríguez, 2011. "Importancia de las rigideces nominales y reales en Colombia: un enfoque de equilibrio general dinámico y estocástico," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 29(66), pages 48-78, December.
    2. Mr. Daniel Leigh, 2008. "Achieving a Soft Landing: The Role of Fiscal Policy," IMF Working Papers 2008/069, International Monetary Fund.
    3. Andrés Felipe Giraldo & Martha Misas Arango & Edgar Villa Pérez, 2011. "Reconstructing the recent monetary policy history of Colombia from 1990 to 2010," Vniversitas Económica 008860, Universidad Javeriana - Bogotá.
    4. 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 005421, Universidad Javeriana - Bogotá.
    5. Urrutia, Miguel & Hofstetter, Marc & Hamann, Franz, 2014. "Inflation Targeting in Colombia, 2002-2012," IDB Publications (Working Papers) 6394, Inter-American Development Bank.
    6. Pietro Bonaldi & Andrés González & Diego Rodríguez, 2011. "Importancia de las rigideces nominales y reales en Colombia: un enfoque de equilibrio general dinámico y estocástico," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 29(66), pages 48-78, December.
    7. Andrés Felipe Giraldo Palomino, 2008. "Aversión a la inflación y regla de Taylor en Colombia 1994-2005," Revista Cuadernos de Economía, Universidad Nacional de Colombia -FCE - CID, December.
    8. Andrés Giraldo & Martha Misas & Edgar Villa, 2012. "Reconstructing Colombia‘s Recent History of Monetary Policy from 1990 to 2010," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 30(67), pages 56-103, July.
    9. Juan Manuel Julio Román, 2006. "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.
    10. 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.
    11. Andrés Felipe Giraldo Palomino, 2010. "Aspectos institucionales de la Banca Central en Colombia (1963-2007)," Revista Cuadernos de Economía, Universidad Nacional de Colombia -FCE - CID, June.
    12. 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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    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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