Monetary policy

In this paper we explore the contribution that asset prices appear to make to fluctuations in the economy and to inflation, and hence to monetary policy, using a large international panel for the 1970–2008 period. We show that house prices are important in the determination of economic activity…

This article first explores the cyclical dynamics of remittances, and then, analyzes the macroeconomic impact of remittances and the monetary policy implications. In this endeavor, we use the case of the Philippines, one of the countries where remittances are substantial. A dynamic structural…

At the end of the last decade, the real activity in Colombia underwent the sharpest recession of the last fifty years. We postulate a non-triangular structural VAR model (Amisano and Giannini, 1997) to describe the dynamics of output, prices, unemployment and wages during the last two decades.…

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 investigates the possible responses of an inflation-targeting monetary policy in the face of asset price deviations from fundamental values.

There is now an impetus to apply dynamic stochastic general equilibrium models to forecasting. But these models typically rely on purpose-built data, for example on tradable and nontradable sector outputs. How then do we know that the model will forecast well, in advance? We develop an early…

During the transition from a moderately high level of inflation to an internationally accepted level, the target, the inflation rate, the nominal interest rate and the nominal equilibrium interest rate may be difference stationary. Policy rules estimation, however, is usually performed under…

 If theory-consistent models can ever hope to forecast well and to be useful for policy, they have to relate to data which though rich in information is uncertain, unbalanced and sometimes forecasts from external sources about the future path of other variables. One example from many is…

The assessment of inflationary pressures in Colombia has faced two important challenges in the present decade. The first one occurred in 2006 and consisted of detecting an overheating economy in the midst of fast growing investment and increasing measured productivity. The second challenge took…

The objective of this paper is to analyze how international cycles affect the real GDP cycle and so monetary policy decisions in Colombia. We estimate that cycles in world GDP, export prices and capital inflows are strongly associated with the Colombian business cycle both on impact and even…

This paper analyses the role of a costly financial system in the transmission of monetary policy. The new-keynesian model for a small open economy is extended with a simple financial system based on Hamann and Oviedo (2006). The presence of the financial intermediation naturally allows the…

This work analyzes the relationship between real interest rates and commodity prices. According to Frankel’s hypothesis (1986-2006): “low real interest rates lead to high real commodity prices”. However, some empirical evidence suggests that commodity prices can predict monetary policy. In this…

In this document we lay out the microeconomic foundations of a dynamic stochastic general equilibrium model designed to forecast and to advice monetary policy authorities in Colombia. The model is called Policy Analysis Tool Applied to Colombian Needs (PATACON). In companion documents we present…

The recent financial crisis has brought to the forefront the need of a better understanding of the transmission mechanisms of monetary policy. The main step forward in this direction has drawn on work aimed at stressing the role of the financial sector in this transmission. Particular emphasis…