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Disinflation Costs Under Inflation Targeting in Small Open Economy: The Colombian Case

Author

Listed:
  • Franz Hamann

    (Banco de la República de Colombia)

  • Juan Manuel Julio

    (Banco de la República de Colombia)

  • Paulina Restrepo Echavarría

    (Banco de la República de Colombia)

  • Álvaro José Riascos Villegas

    (Banco de la República de Colombia)

Abstract

This document presents a general equilibrium model, dinamyc and estocastic aimed to inflation for an small and open economy. The model for the colombian economy was mesured and validated by using an spectral analysis. Costs and benefits for well-fare were determined as a result of having reached the short-term inflation objetive. Results are unpresendented as enviroment and transition consider real rigidities (monopolistic market structure) and nominal rigidities (rigid data) inside an small and open economy. The sensitivity of results to key parameters is also analyzed and it is concluded that high price flexibility leads to lower profits by reducing inflation in a country with markups close to 15% receive higher profits than those with different levels. Finally it was considered that disinflation is more expensive in the case of a closed economy.

Suggested Citation

  • Franz Hamann & Juan Manuel Julio & Paulina Restrepo Echavarría & Álvaro José Riascos Villegas, 2005. "Disinflation Costs Under Inflation Targeting in Small Open Economy: The Colombian Case," Premio de Banca Central Rodrigo Gómez / Central Banking Award "Rodrigo Gómez", Centro de Estudios Monetarios Latinoamericanos, CEMLA, number prg2005eng, July-Dece.
  • Handle: RePEc:cml:prodgz:prg2005eng
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    File URL: http://cemla.org/PDF/premiobc/pub-lib-award2005.pdf
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    Citations

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    Cited by:

    1. Leonardo Barreto, 2018. "Nonconventional monetary policy in a regime-switching model with endogenous financial crises," Documentos CEDE 016382, Universidad de los Andes - CEDE.

    More about this item

    Keywords

    Inflation; Costs;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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