The Regional Effects of Monetary Policy in Colombia

Cristian David González-Téllez and Juan Camilo Laborde-Vera

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We estimate the regional effects of monetary policy in Colombia using exogenous monetary shocks and local projections. Contractionary shocks reduce inflation, economic activity, and employment across regions, but with substantial regional heterogeneity in the magnitude of these effects. We find a positive cross-sectional covariance between price and activity responses, which indicates that these differences primarily reflect variation in the sensitivity of local demand to monetary shocks rather than heterogeneity in regional supply elasticities. We find that the regional transmission of monetary policy is amplified by a greater financial leverage, trade openness, labor-market informality and sectoral specialization in mining. Our results show that a common monetary policy shock generates systematically unequal regional outcomes because differences in local economic structure shape the strength of monetary transmission. *** RESUMEN: We estimate the regional effects of monetary policy in Colombia using exogenous monetary shocks and local projections. Contractionary shocks reduce inflation, economic activity, and employment across regions, but with substantial regional heterogeneity in the magnitude of these effects. We find a positive cross-sectional covariance between price and activity responses, which indicates that these differences primarily reflect variation in the sensitivity of local demand to monetary shocks rather than heterogeneity in regional supply elasticities. We find that the regional transmission of monetary policy is amplified by a greater financial leverage, trade openness, labor-market informality and sectoral specialization in mining. Our results show that a common monetary policy shock generates systematically unequal regional outcomes because differences in local economic structure shape the strength of monetary transmission.

Keywords: Monetary policy; Regional heterogeneity; Heterogeneous Effects of Monetary Policy; local projections; monetary policy shocks; Política monetaria; Heterogeneidad regional; Efectos Heterogéneos de la Política Monetaria; proyecciones locales; choques de política monetaria (search for similar items in EconPapers)
JEL-codes: E24 E43 E44 E52 E58 F41 F45 R11 R12 (search for similar items in EconPapers)
Pages: 46
Date: 2026-09
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1367

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