The international cycle and colombian monetary policy

Abstract

The objective of this paper is to analyze how international cycles affect the real GDP cycle and so monetary policy decisions in Colombia. We estimate that cycles in world GDP, export prices and capital inflows are strongly associated with the Colombian business cycle both on impact and even during the first year. We find evidence that, because of inefficiencies in the domestic financial sector, external gains are channelled into nontradable spending through credit expansions. This creates large appreciations during booms. The reverse happens during world slowdowns. These swings in the Exchange rate restrict the scope for a countercyclical monetary policy.

The Sectoral Effects of Exchange Rate Fluctuations

“…Second, as on one hand, the financial sector is often central to the service sector and, on the other, the real exchange rate change can reverse; 15 this correlation warns of the risk that the real exchange rate boom is related to worsening financial vulnerability. Mahadeva and Gómez (2009) show how the cycle in the real value added of the real estate and financial sector has been correlated with that of Colombia's real dollar export prices.…”

Terms of trade and output fluctuations in Colombia

“…6 For Colombia and Korea the BP filtered data yield the strongest correlations. This suggests that the positive relationship between output and the terms of trade might be obscured when using the HP filter because of the large amount of high frequency variation in the terms of trade data" (p.275) [Parra, 2008], with quarterly data from 1994 to 2007, reports a correlation equal to 0.24 and [Mahadeva and Gómez, 2009] report a positive correlation between the terms of trade and real GDP per capita for Colombia equal to 0.32 (using annual data for 1970-2007).…”

Fluctuaciones del ciclo económico de colombia. análisis comparativo según métodos univariados

“…Varios trabajos analizan las fluctuaciones en el nivel de actividad económica de Colombia: • Maurer y Uribe (1996) Boschan (1971) a las series del índice de producción industrial y de producto interno bruto para fechar los ciclos de negocios colombianos entre 1980 y 2007, mientras que en Arango y otros (2007b), los mismos autores, aplican el método de tendencia promedio de fase de Boschan y Ebanks (1978). • Mahadeva y Pineda (2009) aplican un filtro de tendencia lineal para estimar el componente cíclico del producto interno bruto y de otras magnitudes macroeconómicas a efectos de medir la influencia del ciclo en la economía mundial a través de la política monetaria del país. • Martínez y Mesa (2009) aplican el filtro de But-terworth a las series de producción industrial total y por rama de actividad, y encuentran diferencias en la dinámica entre actividades y ciclos que responden en mayor medida a choques exógenos a la rama o sector respectivos que a ciclos particulares.…”