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Assessing Inflationary Pressures in Colombia

Author

Listed:
  • Hernando Vargas

    ()

  • Andrés González

    ()

  • Eliana González

    ()

  • Jose Vicente Romero

    ()

Abstract

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 ination. 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 ination 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 inationindicators, since some signals could be picked by some measures and not by others. Moreover,this result suggests that the analysis of core ination 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, ination expectations partiallymove with "supply" shocks, an outcome that reects a degree of credibility of monetary policy.

Suggested Citation

  • Hernando Vargas & Andrés González & Eliana González & Jose Vicente Romero, 2009. "Assessing Inflationary Pressures in Colombia," BORRADORES DE ECONOMIA 005473, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:005473
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    References listed on IDEAS

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    1. Luis Eduardo Arango & Carlos Esteban Posada, 2007. "Los salarios de los funcionarios públicos en Colombia, 1978-2005," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, vol. 25(55), pages 110-147, December.
    2. Hernando Vargas, 2008. "The transmission mechanism of monetary policy in Colombia: major changes and current features," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 183-211, Bank for International Settlements.
    3. Andrés Gonzalez & Franz Hamann, 2011. "Lack of Credibility, Inflation Persistence and Disinflation in Colombia," Revista Desarrollo y Sociedad, Universidad de los Andes - CEDE, May.
    4. Hernán Rincón, 2008. "¿Los consumidores colombianos de combustibles reciben subsidios o, en neto, pagan impuestos?," BORRADORES DE ECONOMIA 005209, BANCO DE LA REPÚBLICA.
    5. Enrique López Enciso, 2008. "Algunos hechos estilizados sobre el comportamiento de los precios regulados en Colombia," Borradores de Economia 527, Banco de la Republica de Colombia.
    6. Luis Eduardo Arango & Paula Herrera & Carlos Esteban Posada, 2008. "El salario mínimo: aspectos generales sobre los casos de Colombia y otros países," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 26(56), pages 204-263, June.
    7. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219, National Bureau of Economic Research, Inc.
    8. Robert W. Rich & Charles Steindel, 2007. "A comparison of measures of core inflation," Economic Policy Review, Federal Reserve Bank of New York, vol. 13(Dec), pages 19-38.
    9. Juan Díaz & Gustavo Leyva, 2008. "Forecasting Chilean Inflation in Difficult Times," Working Papers Central Bank of Chile 511, Central Bank of Chile.
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    Cited by:

    1. Juan Camilo Galvis Ciro & Juan Camilo Anzoategui-Zapata, 2019. "Efectos de los anuncios de política monetaria y la credibilidad sobre las expectativas de inflación: evidencia para Colombia," Revista Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 38(67), pages 73-94, February.
    2. Thereza Balliester Reis, 2018. "Why Are Policy Real Interest Rates So High in Brazil? An Analysis of the Determinants of the Central Bank of Brazil’s Real Interest Rate," International Journal of Political Economy, Taylor & Francis Journals, vol. 47(2), pages 178-198, April.
    3. Juan Andrés Espinosa-Torres & Luis Fernando Melo-Velandia & José Fernando Moreno-Gutiérrez, 2017. "Expectativas de inflación, prima de riesgo inflacionario y prima de liquidez: una descomposición del break-even inflation para los bonos del Gobierno colombiano," Revista Desarrollo y Sociedad, Universidad de los Andes - CEDE, vol. 78, February.
    4. Ramon Moreno & Agustin Villar, 2010. "Inflation expectations, persistence and monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 77-92, Bank for International Settlements.
    5. M. Ali Choudhary & Saima Mahmood & Gylfi Zoega, 2015. "Informal Labour Markets in Pakistan," BCAM Working Papers 1504, Birkbeck Centre for Applied Macroeconomics.
    6. Ramon Moreno, 2010. "Some issues in measuring and tracking prices in emerging market exonomies," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 13-51, Bank for International Settlements.
    7. M. Ali Choudhary & Saima Mahmood & Sajawal Khan & Waqas Ahmed & Gylfi Zoega, 2013. "Sticky Wages in a Developing Country: Lessons from Structured Interviews in Pakistan," School of Economics Discussion Papers 0213, School of Economics, University of Surrey.
    8. Carlos Huertas Campos & Eliana González Molano & Cristhian Ruiz Cardozo, 2015. "La formación de expectativas de inflación en Colombia," BORRADORES DE ECONOMIA 012699, BANCO DE LA REPÚBLICA.
    9. Norberto Rodríguez-Niño & Alejandra Ramírez-Ramírez, 2018. "Metodologías semi-estructurales para estimar la Inflación básica mensual en Colombia," Borradores de Economia 1040, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    Core Inflation Indicators; Inflation Expectations; Monetary Policy.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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