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Monetary policy in Costa Rica: an assessment based on the real neutral interest rate 2009-2018

Author

Listed:
  • Evelyn Muñoz-Salas

    (Department of Economic Research, Central Bank of Costa Rica)

  • Adolfo Rodríguez-Vargas

    (Department of Economic Research, Central Bank of Costa Rica)

Abstract

In this study we assess the monetary policy stance in Costa Rica during the years 2009-2018 using an indicator of the real policy rate gap. We obtain estimates of the real neutral interest rate by using six methodologies, whose empirical consistency is evaluated in order to decide whether they are used in the final estimation. The updated value for the real neutral interest rate is 1.54%. The policy rate gap indicator shows appropriate empirical properties, among them a negative lead correlation with the output gap and core inflation. This suggests that the policy rate is successfully influencing the marginal cost of liquidity for financial intermediaries. Our analysis suggests that monetary policy in Costa Rica has responded mainly to inflation movements not related to temporary shocks, and that there are episodes when the required policy adjustments could have been swifter. ***Resumen: En este estudio se realiza una evaluación de la postura de política monetaria para Costa Rica en el período 2009-2018 con base en un indicador de brecha de tasa de interés real. Se realiza estimaciones de la tasa de interés real neutral mediante seis metodologías, cuya coherencia empírica se evalúa para decidir su uso en el cálculo de un único indicador. El valor más actualizado de la tasa de interés real neutral (TIRN) para Costa Rica se estima en 1,54%. El indicador de brecha de tasa de interés real calculado a partir de la serie de TIRN muestra propiedades empíricas apropiadas, entre ellas correlaciones negativas y adelantadas con la brecha de producto y la inflación subyacente. Esto sugiere que el uso de la tasa de interés de política está siendo exitoso en cumplir el objetivo de influir en el costo marginal de la liquidez para los intermediarios financieros. El análisis sugiere que la política monetaria en Costa Rica ha respondido mayoritariamente a movimientos de la inflación no asociados con choques temporales, y que hay instancias en las que los ajustes requeridos en la postura de política pudieron ser más acelerados.

Suggested Citation

  • Evelyn Muñoz-Salas & Adolfo Rodríguez-Vargas, 2019. "Monetary policy in Costa Rica: an assessment based on the real neutral interest rate 2009-2018," Documentos de Trabajo 1904, Banco Central de Costa Rica.
    • Handle: RePEc:apk:doctra:1904
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    File URL: https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/320
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    References listed on IDEAS

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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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