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An Optimal Taylor Rule for Colombia, 1991-2006

Author

Listed:
  • Remberto Rhenals

    (Facultad de Ciencias Económicas - Universidad de Antioquia)

  • Juan Pablo Saldarriaga

    (Facultad de Ciencias Económicas y Administrativas de la Universidad Católica Popular de Risaralda)

Abstract

In this article, an open-economy optimal monetary rule is estimated for Colombia over the period 1991-2006 using the Generalized Method of Moments (GMM). The results show that in 1991-1999 the monetary authorities had two targets: one for the inflation rate and another for the exchange rate. In contrast, the exchange rate did not seem to be a concern for the monetary authorities during 2000-2006, or at least they did not use the interest rate to address such a goal. The output gap is statistically significant in both sub-periods, but the magnitude of its coefficient is practically negligible.

Suggested Citation

  • Remberto Rhenals & Juan Pablo Saldarriaga, 2008. "An Optimal Taylor Rule for Colombia, 1991-2006," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 69, pages 9-39, Julio-Dic.
  • Handle: RePEc:lde:journl:y:2008:i:69:p:9-39
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    More about this item

    Keywords

    Rules; Discretion; Monetary Policy Reaction Function; Optimal Taylor Rule; Inflation Rate; Interest Rate;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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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