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The Implementation Of Inflation Targeting In Colombia

  • Javier Gómez

    ()

  • José Darío Uribe

    ()

  • Hernando Vargas

    ()

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    Explicit inflation targets have existed in Colombia since the early nineties1 . The Colombian authorities announced a quantitative in‡ation target for the first time in 1991. The announcement was made by the Minister of Finance, at a time when there was no clear distinction between the tasks of the central bank and those of the government with respect to macroeconomic management, nor there was any autonomy in the design and execution of monetary policy. In 1991, a new Constitution assigned the design and conduct of monetary, exchange, and credit policies exclusively to the Board of Directors of Banco de la República and made the central bank independent from the central government. According to the Constitution, ”The State, through Banco de la República must preserve the purchasing power of currency”. In addition to the constitutional mandate, in 1992 the Central Bank Law stated that the Board of Directors must announce each year a quantitative inflation target. The reduction of inflation in Colombia has faced several hurdles. To begin, the introduction of explicit inflation targets in Colombia had two special features. First, unlike other countries, the inflation target was not initially announced as part of a policy framework to achieve price stability. Second, there was a marked deviation between observed inflation and the first announced target. Thus, inflation targeting in Colombia started with low credibility and confusion about its nature and operational meaning.

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    Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 003603.

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    Length: 62
    Date of creation: 31 Mar 2002
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    Handle: RePEc:col:000094:003603
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    1. Esteban Jadresic, 1996. "Wage Indexation and the Cost of Disinflation," IMF Working Papers 96/48, International Monetary Fund.
    2. repec:nbr:nberre:0126 is not listed on IDEAS
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    5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    6. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
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    12. 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.
    13. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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    15. Martha López, . "Seigniorage and the Welfare Cost of Inflation in Colombia," Borradores de Economia 151, Banco de la Republica de Colombia.
    16. Mahadeva, Lavan & Sterne, Gabriel, 2002. "Inflation Targets as a Stabilization Device," Manchester School, University of Manchester, vol. 70(4), pages 619-50, Special I.
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    18. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
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    20. Tarkka, Juha & Mayes, David, 1999. "The Value of Publishing Official Central Bank Forecasts," Research Discussion Papers 22/1999, Bank of Finland.
    21. Laurence Ball, 1990. "Credible Disinflation with Staggered Price Setting," NBER Working Papers 3555, National Bureau of Economic Research, Inc.
    22. Javier Gómez & Juan Manuel Julio, 2003. "Transmission Mechanism and Inflation Targeting: The Case of Colombia's Desinflation," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 18(2), pages 109-133, December.
    23. Enrique López E & Martha Misas A, 1998. "Un Examen Empírico De La Curva De Phillips En Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
    24. Laurence Ball & Dean Croushore, 1995. "Expectations and the Effects of Monetary Policy," NBER Working Papers 5344, National Bureau of Economic Research, Inc.
    25. Javier Gómez Pineda, 2002. "Wage Indexation, Inflation Inertia, and The Cost of Disinflation," BORRADORES DE ECONOMIA 003770, BANCO DE LA REPÚBLICA.
    26. Ball, Laurence & Cecchetti, Stephen G, 1991. "Wage Indexation and Discretionary Monetary Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1310-19, December.
    27. Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers 97/130, International Monetary Fund.
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