Modeling the monetary policy reaction function of the colombian central bank
This paper proposes a simple Ordered Probit model to analyse the monetary policy reactionfunction of the Colombian Central Bank. There is evidence that the reaction function isasymmetric, in the sense that the Bank increases the Bank rate when the gap between observedinflation and the inflation target (lagged once) is positive, but it does not reduce the Bank rate whenthe gap is negative. This behaviour suggests that the Bank is more interested in fulfilling theannounced inflation target rather than in reducing inflation excessively. The forecasting performanceof the model, both within and beyond the estimation period, appears to be particularly good.
|Date of creation:||14 Apr 2008|
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- Svensson, Lars E. O., 1999.
"Inflation targeting as a monetary policy rule,"
Journal of Monetary Economics,
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- Svensson, L.E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Papers 646, Stockholm - International Economic Studies.
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- Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers 646, Stockholm University, Institute for International Economic Studies.
- Svensson, Lars E O, 1998. "Inflation Targeting as a Monetary Policy Rule," CEPR Discussion Papers 1998, C.E.P.R. Discussion Papers.
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- Carstensen, Kai, 2006. "Estimating the ECB policy reaction function," Munich Reprints in Economics 19941, University of Munich, Department of Economics.
- Eichengreen, Barry & Watson, Mark W & Grossman, Richard S, 1985. "Bank Rate Policy under the Interwar Gold Standard: A Dynamic Probit Model," Economic Journal, Royal Economic Society, vol. 95(379), pages 725-745, September.
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- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. Full references (including those not matched with items on IDEAS)
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