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Assessing Inflationary Pressures in Colombia

  • Hernando Vargas

    ()

  • Andrés González

    ()

  • Eliana González

    ()

  • Jose Vicente Romero

    ()

The assessment of inflationary pressures in Colombia has faced two important challenges inthe present decade. The �rst one occurred in 2006 and consisted of detecting an overheatingeconomy in the midst of fast growing investment and increasing measured productivity. Thesecond challenge took place in 2007-2008, when the economy was hit by a number of "supply"shocks and core inflation indicators sent diverging signals about the transmission of thoseshocks to macroeconomic in�ation. An evaluation of the �rst episode shows that traditionalindicators of productivity and unit labor costs were not su¢ cient to identify "supply" and"demand" movements. Thus, policymakers had to rely on a wider array of variables to gaugethe state of the economy.Regarding the second episode, an evaluation of core in�ation indicators according to stan-dard criteria suggests that no particular measure seems to be clearly superior to the others.Hence, the assessment of inflationary pressures should not rely only on one or few core in�ationindicators, since some signals could be picked by some measures and not by others. Moreover,this result suggests that the analysis of core in�ation measures must be complemented witha careful examination of the persistence of the shocks and a close monitoring of their impacton inflation expectations. It is found that the latter are formed on the basis of past inflaation,but that the inflation target also plays a role. In addition, in�ation expectations partiallymove with "supply" shocks, an outcome that re�ects a degree of credibility of monetary policy.

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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 005473.

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Length: 41
Date of creation: 21 Apr 2009
Date of revision:
Handle: RePEc:col:000094:005473
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  1. Luis Eduardo Arango & Carlos Esteban Posada, 2007. "Los Salarios De Los Funcionariospúblicos En Colombia, 1978-2005," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  2. Enrique López Enciso, . "Algunos hechos estilizados sobre el comportamiento de los precios regulados en Colombia," Borradores de Economia 527, Banco de la Republica de Colombia.
  3. Andrés González & Franz Hamann, . "Lack of Credibility, Inflation Persistence and Disinflation in Colombia," Borradores de Economia 658, Banco de la Republica de Colombia.
  4. Robert Rich & Charles Steindel, 2007. "A comparison of measures of core inflation," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 19-38.
  5. Paula Herrera & Luie Eduardo Arango & Carlos Estéban Posada, 2007. "El salario mínimo aspectos generales sobre los casos de Colombia y otros paises," DOCUMENTOS DE ECONOMÍA 003944, UNIVERSIDAD JAVERIANA - BOGOTÁ.
  6. Michael F. Bryan & Stephen G. Cecchetti, 1993. "Measuring Core Inflation," NBER Working Papers 4303, National Bureau of Economic Research, Inc.
  7. Hernán Rincón, . "¿Los consumidores colombianos de combustibles reciben subsidios o, en neto, pagan impuestos?," Borradores de Economia 540, Banco de la Republica de Colombia.
  8. Hernando Vargas H., 2007. "The Transmission Mechanism of Monetary Policy in Colombia Major Changes and Current Features," BORRADORES DE ECONOMIA 003630, BANCO DE LA REPÚBLICA.
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