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Money, The Rate of Devaluation and Interest Rates in a Semi-Open Economy: Colombia 1968-1982

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  • Sebastian Edwards

Abstract

In this paper an empirical model for analyzing the behavior of nominal interest rates in a semi-open economy is developed. The model explicitly incorporates both the role of open economy factors (i.e., world interest rates, expected rate of devaluation) and domestic monetary conditions in explaining interest rates movement. The model is tested using quarterly data for Colombia for 1968-1982. The results obtained indicate that the semi-open characterization is adequate for the case of Colombia, and that world interest rates, the rate of devaluation and domestic monetary conditions have affected domestic nominal interest rates during the period under consideration. The results also indicate that unanticipated increases in the nominal quantity of money have exercised a negative effect on nominal interest rates in Colombia.

Suggested Citation

  • Sebastian Edwards, 1984. "Money, The Rate of Devaluation and Interest Rates in a Semi-Open Economy: Colombia 1968-1982," NBER Working Papers 1380, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1380
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    Cited by:

    1. Perez-Reyna, David & Villamizar-Villegas, Mauricio, 2019. "Exchange rate effects of financial regulations," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 228-245.
    2. Byung Chan Ahn, 1994. "Monetary policy and the determination of the interest rate and exchange rate in a small open economy with increasing capital mobility," Working Papers 1994-024, Federal Reserve Bank of St. Louis.
    3. McNelis, Paul D. & Schmidt-Hebbel, Klaus, 1991. "Volatility reversal from interest rates to the real exchange rate : financial liberalization in Chile, 1975-82," Policy Research Working Paper Series 697, The World Bank.

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