Modelling the monetary policy reaction function of the Colombian Central Bank

Jesús Otero, Manuel Ramírez

Research output: Contribution to journalArticlepeer-review

Abstract

This paper proposes a simple ordered probit model to analyse the monetary policy reaction function of the Colombian Central Bank. There is evidence that the reaction function is asymmetric, in the sense that the Bank increases the Bank rate when the gap between observed inflation and the inflation target (lagged once) is positive, but it does not reduce the Bank rate when the gap is negative. This behaviour suggests that the Bank is more interested in fulfilling the announced inflation target rather than in reducing inflation excessively. The forecasting performance of the model, both within and beyond the estimation period, appears to be particularly good.
Original languageEnglish (US)
Pages (from-to)3 - 11
Number of pages9
JournalMacroeconomics and Finance in Emerging Market Economies
Volume2
Issue number1
DOIs
StatePublished - Apr 8 2009

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