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Constant-Interest-Rate Projections and Its Indicator Properties

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  • Christian Bustamante
  • Luis E. Rojas

Abstract

This paper propose indicator variables for the implementation of monetary policy in an inflation targeting regime. Using constant interest rate projections, the notion of a target-compatible interest rate is presented. This variable allows to extract some characteristics that the expected future path of the interest rate have to fulfill in order to be compatible with the target. The specific formulation of the target-compatible interest rate is presented under alternative assumptions over the forecasting horizon (unconditional or conditional forecasts) and the objective of the monetary authority (inflation target or a loss function). The empirical counterpart of the various formulations is shown using a DSGE model for Colombia; a small open economy with an inflation targeting regime.

Suggested Citation

  • Christian Bustamante & Luis E. Rojas, 2012. "Constant-Interest-Rate Projections and Its Indicator Properties," Borradores de Economia 696, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:696
    DOI: 10.32468/be.696
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    Cited by:

    1. Paula Andrea Beltrán-Saavedra, 2015. "Precio del petróleo y el ajuste de las tasas de interés en las economías emergentes," Borradores de Economia 13619, Banco de la Republica.

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    More about this item

    Keywords

    Monetary policy; constant-interest-rate projections; modest policy interventions; inflation targeting.;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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