Inflation Targeting in Colombia, 2002-2012

46 Pages Posted: 11 Mar 2014

See all articles by Miguel Urrutia

Miguel Urrutia

Universidad de los Andes, Colombia - Department of Economics

Marc Hofstetter

Universidad de los Andes

Franz Hamann

Central Bank of Colombia

Date Written: February 2014

Abstract

After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. This paper examines the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. The paper studies the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, a small-scale open-economy policy model is estimated.

JEL Classification: E02, E32, E42, E43, E52, E58, E61, F31, F33, F42

Suggested Citation

Urrutia, Miguel and Hofstetter, Marc and Hamann, Franz, Inflation Targeting in Colombia, 2002-2012 (February 2014). IDB Working Paper No. IDB-WP-487, Available at SSRN: https://ssrn.com/abstract=2407367 or http://dx.doi.org/10.2139/ssrn.2407367

Miguel Urrutia (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

Marc Hofstetter

Universidad de los Andes ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Franz Hamann

Central Bank of Colombia ( email )

Carrera 7 #14-78
3551 de Bogotá
Colombia

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