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Reconstructing the recent monetary policy history of Colombia from 1990 to 2010

  • Andrés Felipe Giraldo

    ()

  • Martha Misas Arango

    ()

  • Edgar Villa Pérez

    ()

This article reconstructs the history of monetary policy of the central bank of Colombia inthe period 1990 to 2010 in which explicit in�ation targeting was adopted by October of 2000.To do so we developed theoretically a modi�ed Taylor rule with interest rate smoothing foran open and small economy and accordingly estimate a two regime Markov switching modelwhich allows the switching dates to be endogenously determined. We �nd that one regimehad explicit in�ation targeting (from the year 2000 up to 2010) in which the in�ation rate isa stationary series, given that the central bank enforced a monetary policy that satis�ed theTaylor principle. This in�ation stabilizing regime did show up in some quarters before theyear 2000 but was not the predominant. The other regime was the more prevalent during the1990s but did not satisfy the Taylor principle allowing a unit root behavior of the in�ationrate. Moreover we �nd that the central bank reacted aggressively during the 1990s to output�uctuations while having an accomodating behavior for this variable during explicit in�ationtargeting from 2000 onwards.

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File URL: http://cea.javeriana.edu.co/documents/153049/2786252/Vol.11_6_2011.pdf/4ec84d8f-c629-4748-a677-c1610fa13ca8
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Paper provided by UNIVERSIDAD JAVERIANA - BOGOTÁ in its series VNIVERSITAS ECONÓMICA with number 008860.

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Length: 38
Date of creation: 31 May 2011
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Handle: RePEc:col:000416:008860
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  1. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  2. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  3. Hall, Stephen G & Psaradakis, Zacharias & Sola, Martin, 1999. "Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(2), pages 143-54, March-Apr.
  4. Martha Misas A & Juan José Echavarría S & Enrique López E, 2010. "La persistencia estadística de la inflación en Colombia," VNIVERSITAS ECONÓMICA 008296, UNIVERSIDAD JAVERIANA - BOGOTÁ.
  5. Raquel Bernal, 2002. "Monetary Policy Rules In Colombia," DOCUMENTOS CEDE 003251, UNIVERSIDAD DE LOS ANDES-CEDE.
  6. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  7. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  8. Juan José Echavarría & Norberto Rodríguez & Luis Eduardo Rojas, 2011. "La Meta Del Banco Central Y La Persistencia De La Inflación En Colombia," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 29(65), pages 198-222, Junio.
  9. Bennett T. McCallum, 2001. "Should Monetary Policy Respond Strongly to Output Gaps?," NBER Working Papers 8226, National Bureau of Economic Research, Inc.
  10. Andrés Felipe Giraldo palomino, 2007. "Aversión a la inflación y regla de Taylor en Colombia 1994-2005," DOCUMENTOS DE ECONOMÍA 003947, UNIVERSIDAD JAVERIANA - BOGOTÁ.
  11. Gloria Lucía Bernal Nisperuza & Johanna Táutiva Pradere, 2008. "Relevancia de los datos en tiempo real en la estimación de la regla de Taylor para Colombia," DOCUMENTOS DE ECONOMÍA 005421, UNIVERSIDAD JAVERIANA - BOGOTÁ.
  12. Camacho, Maximo, 2011. "Markov-switching models and the unit root hypothesis in real US GDP," Economics Letters, Elsevier, vol. 112(2), pages 161-164, August.
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