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On the determinants of the inflation rate in Colombia: a disequilibrium market approach

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  • Jesus Otero
  • Manuel Ramirez

Abstract

We investigate the inflation rate in Colombia in terms of excess money, excess demand, deviations from PPP, and wage inflation. In contrast to previous results for a group of industrial economias, we find that domestic factors are a far more powerful influence on inflation than are external factors. We also find evidence of non-linear price behavior in response to excess demand and deviations from PPP; prices appear to respond symmetrically to excess money. The constitutional reform of 1991, which gave greater political independence to the Central Bank, also did influence inflation, both changing some parameters of the model and the adjustment patterns. ************************************************************************ Se investiga la tasa de inflación en términos del exceso de dinero, el exceso de demanda, de las desviaciones con respecto a la PPa y de la inflación salarial. A diferencia de los resultados encontrados para un grupo de países industrializados, encontramos que los factores domésticos tienen una influencia mucho mayor sobre la inflación que los factores externos. Tambien encontramos evidencia de comportamiento no lineal de los precios en respuesta a los excesos de demanda y a las desviaciones con respecto a la PPA; los precios responden simétricamente al exceso de dinero. La reforma constitucional de 1991 incrementó la independencia del Banco Central, tambien influenció la inflación, pero por medio de cambios en los parámetros y en los patrones de ajuste.

Suggested Citation

  • Jesus Otero & Manuel Ramirez, 2002. "On the determinants of the inflation rate in Colombia: a disequilibrium market approach," Borradores de Investigación 003296, Universidad del Rosario.
  • Handle: RePEc:col:000091:003296
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    Cited by:

    1. Sebastian Gomez-Cardona, 2014. "Monetary Policy and Exchange Rate in a Structural VAR for a Small Open Economy," Revista Desarrollo y Sociedad, Universidad de los Andes – Facultad de Economía – CEDE, November.
    2. Javier Gómez & José Darío Uribe & Hernando Vargas, 2002. "The Implementation Of Inflation Targeting In Colombia," BORRADORES DE ECONOMIA 003603, BANCO DE LA REPÚBLICA.

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    More about this item

    Keywords

    Inflation; cointegration; non-linearities; excess money; excess demand; imported inflation; wage inflation; Colombia;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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