Disinflation Costs Under Inflation Targeting in Small Open Economy: The Colombian Case

Franz Hamann, Juan Julio, Paulina Restrepo-Echavarria and Alvaro Riascos ()

in Premio de Banca Central Rodrigo Gómez / Central Banking Award "Rodrigo Gómez" from Centro de Estudios Monetarios Latinoamericanos, CEMLA

Abstract: This document presents a general equilibrium model, dinamyc and estocastic aimed to inflation for an small and open economy. The model for the colombian economy was mesured and validated by using an spectral analysis. Costs and benefits for well-fare were determined as a result of having reached the short-term inflation objetive. Results are unpresendented as enviroment and transition consider real rigidities (monopolistic market structure) and nominal rigidities (rigid data) inside an small and open economy. The sensitivity of results to key parameters is also analyzed and it is concluded that high price flexibility leads to lower profits by reducing inflation in a country with markups close to 15% receive higher profits than those with different levels. Finally it was considered that disinflation is more expensive in the case of a closed economy.

Keywords: Inflation; Costs (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 2005
ISBN: 978-607-7734-00-0
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Citations: View citations in EconPapers (1)

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