We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Lack of Credibility, Inflation Persistence and Disinflation in Colombia.
- Authors
González G., Andrés; Hamann, Franz
- Abstract
This paper measures inflation persistence in Colombia for the period 1990-2010 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.
- Subjects
PRICE inflation; MARKET volatility; PRICE deflation; CAPITAL market; EFFECT of inflation on the banking industry
- Publication
Desarrollo y Sociedad, 2011, Issue 67, p61
- ISSN
0120-3584
- Publication type
Article