Lack of Credibility, Inflation Persistence and Disinflation in Colombia
This paper measures inflation persistence in Colombia for the period1990-2010 and estimates the implied speed at which agents learn about the central bank’s inflation target. We estimate Erceg and Levin’s (2003) imperfect credibility model using Bayesian techniques and compare the posterior odds of...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Universidad de los Andes (Bogotá)
2011-06-01
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| Series: | Desarrollo y Sociedad |
| Subjects: | |
| Online Access: | http://economia.uniandes.edu.co/revistadys/67/02_Credibility.pdf |
| _version_ | 1819210470958039040 |
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| author | Franz Hamann Andrés Gonzalez |
| author_facet | Franz Hamann Andrés Gonzalez |
| author_sort | Franz Hamann |
| collection | DOAJ |
| description | This paper measures inflation persistence in Colombia for the period1990-2010 and estimates the implied speed at which agents learn about the central bank’s inflation target. We estimate Erceg and Levin’s (2003) imperfect credibility model using Bayesian techniques and compare the posterior odds of this model against a conventional Neokeynesian model with ad-hoc price indexation. The odds are strongly in favor of the imperfect credibility model, suggesting that lack of credibility on the inflation target is an important source of inflation persistence. We use the model to compute the sacrifice ratio associated to 100 basis points inflation target shocks and find that it is (0.83%) in line with previous estimates for Colombia. We also find that the speed at which agents learn in the model has increased, albeit marginally, since the central bank implemented its inflation targeting strategy. Although during this period macroeconomic volatility has fallen, inflation persistence has remained roughly constant suggesting that, so far, the impact of those credibility gains on inflation persistence has been modest. |
| first_indexed | 2024-12-23T06:11:42Z |
| format | Article |
| id | doaj.art-82a9ef2f1dda43acbe6bcf54a0ae7210 |
| institution | Directory Open Access Journal |
| issn | 0120-3584 1900-7760 |
| language | English |
| last_indexed | 2024-12-23T06:11:42Z |
| publishDate | 2011-06-01 |
| publisher | Universidad de los Andes (Bogotá) |
| record_format | Article |
| series | Desarrollo y Sociedad |
| spelling | doaj.art-82a9ef2f1dda43acbe6bcf54a0ae72102022-12-21T17:57:27ZengUniversidad de los Andes (Bogotá)Desarrollo y Sociedad0120-35841900-77602011-06-016716198Lack of Credibility, Inflation Persistence and Disinflation in ColombiaFranz HamannAndrés GonzalezThis paper measures inflation persistence in Colombia for the period1990-2010 and estimates the implied speed at which agents learn about the central bank’s inflation target. We estimate Erceg and Levin’s (2003) imperfect credibility model using Bayesian techniques and compare the posterior odds of this model against a conventional Neokeynesian model with ad-hoc price indexation. The odds are strongly in favor of the imperfect credibility model, suggesting that lack of credibility on the inflation target is an important source of inflation persistence. We use the model to compute the sacrifice ratio associated to 100 basis points inflation target shocks and find that it is (0.83%) in line with previous estimates for Colombia. We also find that the speed at which agents learn in the model has increased, albeit marginally, since the central bank implemented its inflation targeting strategy. Although during this period macroeconomic volatility has fallen, inflation persistence has remained roughly constant suggesting that, so far, the impact of those credibility gains on inflation persistence has been modest.http://economia.uniandes.edu.co/revistadys/67/02_Credibility.pdfCredibilityinflationpersistencedisinflation costsColombia. |
| spellingShingle | Franz Hamann Andrés Gonzalez Lack of Credibility, Inflation Persistence and Disinflation in Colombia Desarrollo y Sociedad Credibility inflation persistence disinflation costs Colombia. |
| title | Lack of Credibility, Inflation Persistence and Disinflation in Colombia |
| title_full | Lack of Credibility, Inflation Persistence and Disinflation in Colombia |
| title_fullStr | Lack of Credibility, Inflation Persistence and Disinflation in Colombia |
| title_full_unstemmed | Lack of Credibility, Inflation Persistence and Disinflation in Colombia |
| title_short | Lack of Credibility, Inflation Persistence and Disinflation in Colombia |
| title_sort | lack of credibility inflation persistence and disinflation in colombia |
| topic | Credibility inflation persistence disinflation costs Colombia. |
| url | http://economia.uniandes.edu.co/revistadys/67/02_Credibility.pdf |
| work_keys_str_mv | AT franzhamann lackofcredibilityinflationpersistenceanddisinflationincolombia AT andresgonzalez lackofcredibilityinflationpersistenceanddisinflationincolombia |