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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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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
Date of revision:
Handle: RePEc:col:000416:008860
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  1. Bennett T. McCallum, 2001. "Should Monetary Policy Respond Strongly to Output Gaps?," American Economic Review, American Economic Association, vol. 91(2), pages 258-262, May.
  2. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  3. 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.
  4. Bernal Raquel, 2003. "Monetary Policy Rules in Colombia," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, March.
  5. 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.
  6. Juan José Echavarría S. & Enrique López E. & Martha Misas A., 2010. "La persistencia estadística de la inflación en Colombia," BORRADORES DE ECONOMIA 007573, BANCO DE LA REPÚBLICA.
  7. Andrés Felipe Giraldo Palomino, 2008. "Aversión a la inflación y regla de Taylor en Colombia 1994-2005," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, December.
  8. 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.
  9. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
  10. 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.
  11. Juan José Echavarría & Norberto Rodríguez & Luis Eduardo Rojas, . "La meta del Banco Central y la persistencia de la inflación en Colombia," Borradores de Economia 633, Banco de la Republica de Colombia.
  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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