Transmission Mechanisms and Inflation Targeting: The Case of Colombiaâ€™s Disinflation
AbstractColombia has been on a steady disinflation path since the early 1990s. In this paper, we model the transmission mechanism of monetary policy during this disinflation. We describe how inflation evolves in response to important shocks that occurred during disinflation such as the terms of trade and to the risk premium, comparing the responses across dif-ferent assumptions about inflation persistence. Disinflation itself is cap-tured by a permanent shift to the inflation target. We evaluate to what extent a shift towards more forward-looking wage and price-setting mechanisms would determine the sacrifice ratio under disinflation.
Upon submission of an article, authors are asked to indicate their agreement to abide by an open-access license. The license permits any user to download, print out, extract, archive, and distribute the article, so long as appropriate credit is given to the authors of the work. The license ensures that your article will be as widely available as possible and that your article can be included in any scientific archive. Please read about the Creative Commons Attribution License before submitting your paper.
Except where otherwise noted, content on this site is licensed under a Creative Commons Attribution 3.0 License