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Transmission Mechanism And Inflation Targeting: The Cese Of Colombia'S Disinflation

  • Javier Gómez


  • Juan Manuel Julio


Colombia has been on a steady disinflation path since the early 1990s. In this paper, we model the transmission mechanism of monetary policy during this disinflation. We describe how inflation evolves in response to important shocks that occurred during disinflation such as the terms of trade and to the risk premium, comparing the responses across different assumptions about inflation persistence. Disinflation itself is captured by a permanent shift to the inflation target. We judge to what extent a shift towards a more forward-looking wage and price-setting determines the sacrifice ratio under disinflation.

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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 003656.

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Length: 31
Date of creation: 31 Jan 2001
Date of revision:
Handle: RePEc:col:000094:003656
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  1. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
  2. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," Papers 88-05, Rochester, Business - General.
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  8. Javier Guillermo Gomez Pineda, 2003. "Wage Indexation, Inflation Inertia And The Cost Of Disinflation," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, June.
  9. Martha López, 2001. "Seigniorage And The Welfare Cost Of Inflation In Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 19(39), pages 115-131, June.
  10. Esteban Jadresic, 1996. "Wage Indexation and the Cost of Disinflation," IMF Working Papers 96/48, International Monetary Fund.
  11. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters, in: Monetary Policy, pages 155-193 National Bureau of Economic Research, Inc.
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  20. repec:sae:niesru:v:145:y::i:1:p:43-63 is not listed on IDEAS
  21. Esteban Jadresic, 1996. "Wage Indexation and the Cost of Disinflation," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 796-825, December.
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  23. Rudiger Dornbusch & Stanly Fischer, 1992. "Inflación moderada," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 11(21), pages 7-68, Junio.
  24. Imrohoroglu, Ayse, 1992. "The welfare cost of inflation under imperfect insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 79-91, January.
  25. McCallum, Bennett T, 1976. "Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates," Econometrica, Econometric Society, vol. 44(1), pages 43-52, January.
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