Monetary and Exchange Rate Policies in Colombia: Progress and Challenges

Abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper focuses on monetary and exchange rate policies in Colombia, with particular emphasis on the period 1999-2002, when flotation of the peso and inflation targeting were adopted. We argue, first, in favor of adopting "operational inflation target ranges" and, second, in favor of strengthening the current scheme of foreign exchange options. The impact of reductions in the reference rates of the Central Bank of Colombia is also assessed. We find that a lower central bank policy interest rate is likely to affect demand only if mortgage refinancing takes place. We present preliminary estimates of Taylor rules in an openeconomy framework for Colombia.

Monetary Policy and Inflation Expectations in Latin America: Long‐Run Effects and Volatility Spillovers

“…2 2 For a detailed description of the monetary policy instruments, see Figueiredo, Fachada, and Goldenstein (2002) for Brazil; Loaiza and Schmidt‐Hebbel (2002) and Cifuentes and Desormeaux (2005) for Chile; Uribe (1999, 2005), Clavijo (2004), and Melo and Riascos (2004) for Colombia; and Banco de México (2007) and Ramos‐Francia and Torres (2007) for Mexico. …”

News or Noise? An Analysis of Brazilian GDP Announcements

“…5 The fact that many macroeconomic data series undergo revisions has also received scant attention in the rapidly expanding empirical literature on monetary policy experiences in developing countries. For example, the analyzes of monetary policy in various countries by Miskin and Schmidt-Hebbel (2001), Corbo (2002), Caputo (2002), Goldfajn et al (2002), Torres (2002), and Clavijo (2003) all employ revised data. It is not yet clear how sensitive the results of these studies are to using revised data versus using real-time data.…”

The Behavior of Interest Rate Differentials under Shifting Exchange Rate Regimes: The Experience of Chile, Colombia and Israel

“…12 In addition, in Chile the initial output coefficient remained (barely) significant although much smaller than during the band period, while in Colombia the initial coefficient turned nonsignificant but the cumulative coefficient became larger. 13 To put these results in context, we may note that, contrary to the current international trend, the Colombian central bank has often declared that its monetary policy decisions are guided not only by an inflation target, but also by, among other factors, the unemployment situation (see Hernández and Tolosa 2001; for a more recent statement, see Clavijo 2004). In contrast, Bank of Israel officials have repeatedly stated that the current policy stance is one of strict inflation targeting, which gives no consideration to output behavior (see Leiderman and Bar-Or 2000).…”