IDEAS home Printed from https://ideas.repec.org/p/col/000094/003656.html
   My bibliography  Save this paper

Transmission Mechanism And Inflation Targeting: The Cese Of Colombia'S Disinflation

Author

Listed:
  • Javier Gómez
  • Juan Manuel Julio

Abstract

Colombia has been on a steady disinflation path since the early 1990s. In this paper, we model the transmission mechanism of monetary policy during this disinflation. We describe how inflation evolves in response to important shocks that occurred during disinflation such as the terms of trade and to the risk premium, comparing the responses across different assumptions about inflation persistence. Disinflation itself is captured by a permanent shift to the inflation target. We judge to what extent a shift towards a more forward-looking wage and price-setting determines the sacrifice ratio under disinflation.

Suggested Citation

  • Javier Gómez & Juan Manuel Julio, 2001. "Transmission Mechanism And Inflation Targeting: The Cese Of Colombia'S Disinflation," Borradores de Economia 3656, Banco de la Republica.
    • Handle: RePEc:col:000094:003656
    as

    Download full text from publisher

    File URL: http://www.banrep.gov.co/docum/ftp/borra168.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters, in: Monetary Policy, pages 155-193, National Bureau of Economic Research, Inc.
    2. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-748, September.
    3. Bankim Chadha & Paul R. Masson & Guy Meredith, 2019. "Models of Inflation and the Costs of Disinflation," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 3, pages 57-99, World Scientific Publishing Co. Pte. Ltd..
    4. Martha López P., 2001. "Seigniorage and the welfare cost of inflation in Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 19(39), pages 115-131, June.
    5. McCallum, Bennett T, 1976. "Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates," Econometrica, Econometric Society, vol. 44(1), pages 43-52, January.
    6. Nicoletta Batini & Andrew Haldane, 1999. "Forward-Looking Rules for Monetary Policy," NBER Chapters, in: Monetary Policy Rules, pages 157-202, National Bureau of Economic Research, Inc.
    7. Imrohoroglu, Ayse, 1992. "The welfare cost of inflation under imperfect insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 79-91, January.
    8. Jones, Larry E. & Manuelli, Rodolfo E., 1995. "Growth and the effects of inflation," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1405-1428, November.
    9. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters, in: Monetary Policy Rules, pages 203-262, National Bureau of Economic Research, Inc.
    10. Javier Gómez., 2003. "Wage Indexation, Inflation Inertia, and the Cost of Disinflation," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 21(43), pages 66-85, June.
    11. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
    12. Sjaastad, Larry A., 1998. "On exchange rates, nominal and real," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 407-439, June.
    13. V. V. Chari & Larry E. Jones & Rodolfo E. Manuelli, 1996. "Inflation, growth, and financial intermediation," Review, Federal Reserve Bank of St. Louis, vol. 78(May), pages 41-58.
    14. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May.
    15. Robert J. Barro, 1996. "Inflation and growth," Proceedings, Federal Reserve Bank of St. Louis, vol. 78(May), pages 153-169.
    16. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    17. Paul R. Masson & Miguel A. Savastano & Sunil Sharma, 2019. "The Scope for Inflation Targeting in Developing Countries," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 10, pages 331-383, World Scientific Publishing Co. Pte. Ltd..
    18. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    19. Rudiger Dornbusch & Stanley Fischer, 1992. "La inflación moderada," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(1), pages 5-70, January-J.
    20. Leonardo Villar & Hernán Rincón, 2000. "The Colombian Economy In The Nineties: Capital Flows And Foreign Exchange Regimes," Borradores de Economia 3575, Banco de la Republica.
    21. Esteban Jadresic, 1996. "Wage Indexation and the Cost of Disinflation," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 796-825, December.
    22. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    23. Mundlak, Yair & Cavallo, Domingo & Domenech, Roberto, 1990. "Effects of Macroeconomic Policies on Sectoral Prices," The World Bank Economic Review, World Bank, vol. 4(1), pages 55-79, January.
    24. N. Gregory Mankiw, 1994. "Monetary Policy," NBER Books, National Bureau of Economic Research, Inc, number greg94-1.
    25. Mr. Esteban Jadresic, 1996. "Wage Indexation and the Cost of Disinflation," IMF Working Papers 1996/048, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Urrutia, Miguel & Hofstetter, Marc & Hamann, Franz, 2014. "Inflation Targeting in Colombia, 2002-2012," IDB Publications (Working Papers) 6394, Inter-American Development Bank.
    2. International Monetary Fund, 2006. "Colombia; Selected Issues," IMF Staff Country Reports 06/401, International Monetary Fund.
    3. Andrés Gonzalez & Franz Hamann, 2011. "Lack of Credibility, Inflation Persistence and Disinflation in Colombia," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, May.
    4. Shobande Olatunji Abdul, 2018. "Monetary Policy Transmission Mechanism in Nigeria: Does Interest Spread Complicate Inflationary Targeting ?," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 47-52, December.
    5. Juan Manuel Julio, 2005. "Implementación, Uso e Interpretación del "Fan Chart"," Borradores de Economia 346, Banco de la Republica de Colombia.
    6. Miguel Urrutia, 2002. "UNA VISION ALTERNATIVA: La Política Monetaria y Cambiaria en la Ültima Década," Borradores de Economia 207, Banco de la Republica de Colombia.
    7. Javier Gómez & José Darío Uribe & Hernando Vargas, 2002. "The Implementation Of Inflation Targeting In Colombia," Borradores de Economia 3603, Banco de la Republica.
    8. Miguel Urrutia, 2002. "UNA VISION ALTERNATIVA: La Política Monetaria y Cambiaria en la Ültima Década," Borradores de Economia 207, Banco de la Republica de Colombia.
    9. Franz Hamann, 2002. "Sovereign Risk and Macroeconomic Fluctuations," Borradores de Economia 225, Banco de la Republica de Colombia.
    10. Fernández Andrés, 2003. "Reformas estructurales, impacto macroeconómico y política monetaria en Colombia," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Javier Gómez & Juan Manuel Julio, 2001. "Transmission Mechanisms and Inflation Targeting: The Case of Colombia Disinflation," Borradores de Economia 168, Banco de la Republica de Colombia.
    2. Javier Gómez & José Darío Uribe & Hernando Vargas, 2002. "The Implementation Of Inflation Targeting In Colombia," Borradores de Economia 3603, Banco de la Republica.
    3. Javier Gómez., 2003. "Wage Indexation, Inflation Inertia, and the Cost of Disinflation," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 21(43), pages 66-85, June.
    4. Javier Gómez, "undated". "Wage Indexation, Inflation Inertia, and the Cost of Disinflation - New version," Borradores de Economia 198nv, Banco de la Republica de Colombia.
    5. Petrevski, Goran, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," EconStor Preprints 271122, ZBW - Leibniz Information Centre for Economics.
    6. Gillman, Max & Kejak, Michal & Valentinyi, Akos, 1999. "Inflation, Growth, and Credit Services," Transition Economics Series 13, Institute for Advanced Studies.
    7. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    8. Dotsey, Michael & Ireland, Peter, 1996. "The welfare cost of inflation in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 29-47, February.
    9. Choi, Sangyup & Furceri, Davide & Loungani, Prakash & Shim, Myungkyu, 2022. "Inflation anchoring and growth: The role of credit constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 134(C).
    10. Christopher Ragan, 1998. "On the Believable Benefits of Low Inflation," Staff Working Papers 98-15, Bank of Canada.
    11. Stojanovikj, Martin & Petrevski, Goran, 2019. "Adopting inflation targeting in emerging markets: exploring the factors behind the decision," MPRA Paper 115797, University Library of Munich, Germany, revised 18 Jun 2020.
    12. Petrevski, Goran, 2023. "Determinants of Inflation Targeting: A Survey of Empirical Literature," EconStor Preprints 271121, ZBW - Leibniz Information Centre for Economics.
    13. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One decade of inflation targeting in the world : What do we know and what do we need to know?," Working Papers Central Bank of Chile 101, Central Bank of Chile.
    14. Rodrigo Suescún M., 1995. "Growth, Welfare Costs and Aggregate Fluctuations in Economies with Monetary Taxation," Borradores de Economia 036, Banco de la Republica de Colombia.
    15. Meixing Dai & Moise Sidiropoulos, 2005. "Should inflation-targeting central banks care about dynamic instabilities in an open economy?," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 8(2), pages 125-141, Winter.
    16. Girijasankar Mallik & Anis Chowdhury, 2011. "Effect of inflation uncertainty, output uncertainty and oil price on inflation and growth in Australia," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 38(4), pages 414-429, September.
    17. Narayan, Paresh Kumar & Narayan, Seema, 2013. "The short-run relationship between the financial system and economic growth: New evidence from regional panels," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 70-78.
    18. Noha Emara, 2012. "Inflation Volatility, Institutions, and Economic Growth," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 4(1), pages 29-53, January.
    19. Andres, Javier & Hernando, Ignacio & Lopez-Salido, J. David, 2004. "The role of the financial system in the growth-inflation link: the OECD experience," European Journal of Political Economy, Elsevier, vol. 20(4), pages 941-961, November.
    20. Michael Bruno & William Easterly, 1996. "Inflation and growth: in search of a stable relationship," Review, Federal Reserve Bank of St. Louis, vol. 78(May), pages 139-146.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000094:003656. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Clorith Angelica Bahos Olivera (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.