4GM: A New Model for the Monetary Policy Analysis in Colombia

González-Gómez, Andrés; Guarín-López, Alexander; Rodríguez, Diego; Vargas-Herrera, Hernando

doi:10.32468/be.1106

Cited by 6 publications

(8 citation statements)

References 19 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…To incorporate the effect of weather shocks on a small open economy New-Keynesian model we modify the 4GM model proposed by Gonzalez et al (2020). This model is a modification of the IMF's quarterly projection model that incorporates several features of the Colombian economy.…”

Section: Model Structurementioning

confidence: 99%

“…Following Gonzalez et al (2020), the output level in logarithmic terms 𝑦 𝑡 is defined in terms of a cyclical component ŷ𝑡 (output gap), and a trend 𝑦 𝑡 (potential output):…”

Section: Is Curve and Potential Outputmentioning

confidence: 99%

“…The QPM is based on the principles of New-Keynesian open economy models, with equations for output (IS curve), inflation (the Phillips curve), the shot-term interest rate (a policy reaction function), and the exchange rate (an uncovered interest rate parity condition). There are numerous references regarding the use of these models and its implementation in several emerging market economies (for example see Berg and Laxton (2006), Benes et al (2017), and Gonzalez et al (2020) among others).In addition, some of this models have tried to incorporate simple modifications to the food inflation Phillips curves, allowing for example, rain precipitations (Berg and Laxton (2006), Uribe et al (2002), and Benes et al (2017)). In this context, our work contributes to the literature by providing a theoretical framework that evaluates to what extent the central bank should react to these shocks to anchor inflation expectation.…”

Section: Introductionmentioning

confidence: 99%

“…Furthermore, we include a credibility mechanism that allow us to create simulations depending on the level of central bank credibility. For this purpose, we modify the 4GM model proposed by Gonzalez et al (2020) for Colombia. The advantage of this model is that it closely matches the Colombian data and disentangles inflation in four baskets (food, regulated items, goods, and services), allowing for a better assessment of the origin of inflation pressures.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Weather Shocks and Inflation Expectations in Semi-Structural Models

Romero-Chamorro¹,

Naranjo-Saldarriaga²

2022

View full text Add to dashboard Cite

Colombia is particularly affected by the El Niño Southern Oscillation (ENSO) weather fluctuations. In this context, this study explores how the adverse weather events linked to ENSO affect the inflation expectations in Colombia and how to incorporate these second-round effects into a small open economy New Keynesian model. Using BVARx models we provide evidence that the inflation expectations obtained from surveys and break-even inflation measures are affected by weather supply shocks. Later, using this stylised fact, we modify one of the core forecasting models of the Banco de la República by incorporating the mechanisms in which weather-related shocks affect marginal costs and inflation expectations. We find that ENSO shocks had an important role in both inflation and the dynamics of inflation expectations, and that policymakers should consider this fact.

show abstract

Section: Model Structurementioning

confidence: 99%

“…Following Gonzalez et al (2020), the output level in logarithmic terms 𝑦 𝑡 is defined in terms of a cyclical component ŷ𝑡 (output gap), and a trend 𝑦 𝑡 (potential output):…”

Section: Is Curve and Potential Outputmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Weather Shocks and Inflation Expectations in Semi-Structural Models

Romero-Chamorro¹,

Naranjo-Saldarriaga²

2022

View full text Add to dashboard Cite

show abstract

“…As mentioned in the previous report, the technical staff will now use a new classification for the CPI, as well as new measures of core inflation, which are detailed in González et al (2020) keeping in mind the fact that the economy appears to be recovering slightly more quickly than projected in the previous report, inflation projections have been revised upward across the entire forecast horizon (eight quarters). Inflation in December is now expected to be close to 1.9% (Graph 2.14), with a range between 1.3% and 2.3%.…”

mentioning

confidence: 99%

Monetary Policy Report - October 2020

2021

View full text Add to dashboard Cite

Recent data suggest that the technical staff’s appraisals of the condition and development of economic activity, inflation and the labor market have been in line with current trends, marked by a decline in demand and the persistence of ample excess productive capacity. A significant projected fall in output materialized in the second quarter, contributing to a decline in inflation below the 3% target and reflected in a significant deterioration of the labor market. A slow recovery in output and employment is expected to continue for the remainder of 2020 and into next year, alongside growing inflation that should remain below the target. The Colombian economy is likely to undergo a significant recession in 2020 (GDP contraction of 7.6%), though this may be less severe than projected in the previous report (-8.5%). Output is expected to have begun a slow recovery in the second half of this year, though it is not projected to return to pre-pandemic levels in 2021 amid significant global uncertainty. The output decline in the first half of 2020 was less severe than anticipated, thanks to an upward revision in first-quarter GDP and a smaller contraction in the second quarter (-15.5%) than had been projected (-16.5%). Available economic indicators suggest an annual decline in GDP in the third quarter of around 9%. No significant acceleration of COVID-19 cases that would imply a tightening of social distancing measures is presumed for the remainder of this year or in 2021. In that context, a gradual opening of the economy would be expected to continue, with supply in sectors that have been most affected by the pandemic recovering slowly as restrictions on economic activity continue to be relaxed. On the spending side, an improvement in consumer confidence, suppressed demand for goods and services, low interest rates, and higher expected levels of foreign demand should contribute to a recovery in output. A low base of comparison would also help explain the expected increase in GDP in 2021. Based on the conditions laid out above, economic growth in 2020 is expected to be between -9% and -6.5%, with a central value of -7.6%. Growth in 2021 is projected to be between 3% and 7%, with a central value of 4.6% (Graph 1.1). Upward revisions compared to the July report take into account a lower-than-expected fall in first-semester growth and a somewhat faster recovery in the third quarter in some sectors. The forecast intervals for 2020 and 2021 growth tightened somewhat but continue to reflect a high degree of uncertainty over theevolution of the pandemic, the easures required to deal with it, and their effects on global and domestic economic activity.

show abstract

Nueva Clasificación del BANREP de la Canasta del IPC y revisión de las medidas de Inflación Básica en Colombia

Romero¹,

González-Molano²,

Hernández-Ortega³

et al. 2020

View full text Add to dashboard Cite

4GM: A New Model for the Monetary Policy Analysis in Colombia

Cited by 6 publications

References 19 publications

Weather Shocks and Inflation Expectations in Semi-Structural Models

Weather Shocks and Inflation Expectations in Semi-Structural Models

Monetary Policy Report - October 2020

Nueva Clasificación del BANREP de la Canasta del IPC y revisión de las medidas de Inflación Básica en Colombia

Contact Info

Product

Resources

About