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Efficient Policy Rulefor Inflation Targeting Incolombia

  • MARTHA ROSALBA LOPEZPIÑEROS

    ()

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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File URL: http://www.banrep.gov.co/docum/ensayos/pdf/espe_045-3.pdf
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Article provided by BANCO DE LA REPÚBLICA - ESPE in its journal ENSAYOS SOBRE POLÍTICA ECONÓMICA.

Volume (Year): 22 (2004)
Issue (Month): 45 (June)
Pages: 80-115

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Handle: RePEc:col:000107:002438
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  12. Harvey, A. & TTrimbur, T. & van Dijk, H., 2003. "Cyclical Components in Economic Time Series: a Bayesian Approach," Cambridge Working Papers in Economics 0302, Faculty of Economics, University of Cambridge.
  13. Danny Quah, 1991. "The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds," FMG Discussion Papers dp126, Financial Markets Group.
  14. Svensson, Lars E.O. & Rudebusch , Glenn, 1998. "Policy Rules for Inflation Targeting," Seminar Papers 637, Stockholm University, Institute for International Economic Studies.
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  17. Renzo Rossini Miñán, 2002. "Aspectos de la adopción de un esquema de metas explícitas de inflación en el Perú," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 5(1), pages 47-67, June.
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  19. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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