Working Papers on Economics

This paper quantifies the welfare effects of decentralisation in Colombia, using a multiregional CGE model. We investigate to what extent will the Colombian population be better off when goods such as health and education, are delivered locally as against centrally. A provision scheme based on…

The empirical literature about economic growth has usually ignored spatial interdependence among countries. This paper uses spatial econometrics to estimate a growth model that includes cross-country interdependence, in which a country’s economic growth depends on the growth rate of its…

This paper estimates an asymmetric error correction model to analyse the dynamic behaviour of the Colombian unemployment rate. We find evidence that wages above their long-run equilibrium level do increase unemployment, but wages below this level do not reduce it.

In this paper we check the relationship between the yields of the Colombian bonds traded in the (secondary) internal market and the yields of the sovereign global securities for the sample period 1999-2001. The hypothesis we maintain is that, under the assumption of capital mobility, it should…

This paper studies the performance, in terms of volatility and welfare, of different monetary policy rules in an economy with two market frictions. We consider a financial friction that highlights the credit channel as the monetary transmission mechanism and a labor friction, that considerably…

This paper studies the dynamic response of a few key macroeconomic variables to each one of three exogenous shocks: monetary, government spending and technological shocks. By using a cash in advance model with two market frictions, one in the intermediation of loanable funds, and one in the…

Colombian monthly data covering the period from 1995:01 to 2002:11 and ECM, fixed and time-varying parameters and Kalman filter techniques are used in this paper to quantify the exchange rate pass-through effects on import prices within a sample of manufactured imports. Also, whether the foreign…

Financial system’s health is a signal of economic growth therefore it is a key indicator to investors. As a consequence, one of the main purposes of policymakers is to keep its stability as well as protect it from foreign activity. Both financial and economic activity in general are susceptible…

Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos…

 The understanding of foreign investment flows is important for emerging market policy makers, since such flows make up a considerable part of the balance of payments, and since such flows tend to be very volatile. Sudden stops or reversals of investment flows have, indeed, played an…

This paper proposes a framework for a regional economic policy in Colombia. The regional characteristics and disparities of the country are studied, and regional disparities are shown to be both significant and persistent over time. This calls for a policy initiative to promote the development…

The surge in Colombian sovereign international bond issues during the 1990s has created an increasing need for the Colombian Government and the Banco de la República to understand the dynamics and the determinants of the sovereign spread. This is the first comprehensive study of the Colombian…

Although Colombia was not directly involved, the economic consequences of World War II had a clear influence on the macroeconomic policies applied in the country during the international conflict, and in the first few years that followed. This essay attempts to explore the role of internal…

 In this essay, the Colombian experience with internal and external debt since the end of the war up to 1970, is discussed. Following a common thread of previous essays, that experience is commented in the international context. The document highlights important similarities and contrasts…

We develop a small open economy model with sectorial balance sheets that are exchange rate exposed and with sectorial stock and flow consistency. The model is perturbed by a shock to investor sentiment and a sudden stop to capital inflow. It is used to evaluate the claims that usually back the…

Since 1991, inflation in Colombia was reduced from 25% on average to about 6% more recently. Although this performance is in line with a long run inflation target of 3%, some analysts ask whether the Central Bank should continue disinflating. In this paper we present a dynamic stochastic general…

This paper investigates the effect of sovereign risk on the stochastic rational expectations equilibrium of a real business cycle small open economy. The market is imperfect because the sovereign cannot commit to repay its outstanding debt and chooses to default when it is optimal to do so. The…

 At a request from the Ministry of Finance, Banco de la República last year carried out an investigation into the feasibility to use parts of the foreign reserves to buy back some of Colombia’s outstanding sovereign U.S.-dollar debt.  This project resulted in two thorough technical…