Modeling the monetary policy reaction function of the colombian central bank

Jesus Otero and Manuel Ramirez

No 4650, Documentos de Trabajo from Universidad del Rosario

Abstract: This paper proposes a simple Ordered Probit model to analyse the monetary policy reactionfunction of the Colombian Central Bank. There is evidence that the reaction function isasymmetric, in the sense that the Bank increases the Bank rate when the gap between observedinflation and the inflation target (lagged once) is positive, but it does not reduce the Bank rate whenthe gap is negative. This behaviour suggests that the Bank is more interested in fulfilling theannounced inflation target rather than in reducing inflation excessively. The forecasting performanceof the model, both within and beyond the estimation period, appears to be particularly good.

Keywords: Monetary policy reaction function; Ordered Probit model; Central Bank independence; Colombia (search for similar items in EconPapers)
JEL-codes: C32 C51 E31 E58 O54 (search for similar items in EconPapers)
Pages: 14
Date: 2008-04-14
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Modelling the monetary policy reaction function of the Colombian Central Bank (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:004650

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