The international cycle and Colombian monetary policy

Lavan Mahadeva and Javier Gómez-Pineda

No 5406, Borradores de Economia from Banco de la Republica

Abstract: The objective of this paper is to analyze how international cycles affect the real GDPcycle and so monetary policy decisions in Colombia. We estimate that cycles in worldGDP, export prices and capital inflows are strongly associated with the Colombianbusiness cycle both on impact and even during the first year. We find evidence that,because of inefficiencies in the domestic financial sector, external gains are channelledinto nontradable spending through credit expansions. This creates large appreciationsduring booms. The reverse happens during world slowdowns. These swings in theExchange rate restrict the scope for a countercyclical monetary policy.

Keywords: Capital inflows; Terms of trade; International Business Cycles; DevelopingCountry; Colombia; Monetary policy; Business Cycle. (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 F41 (search for similar items in EconPapers)
Pages: 83
Date: 2009-04-05
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: The international cycle and Colombian monetary policy (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000094:005406

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