Exchange rate pass-through to domestic prices: the case of Colombia

Rowland, Peter

doi:10.32468/be.254

Cited by 27 publications

(25 citation statements)

References 28 publications

(43 reference statements)

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“…The pass-through of foreign shocks on domestic inflation and economic activity is negligible. While these findings might be surprising they are consistent with those found in other papers, e.g., Gomez, et al 2002 andRowland (2004) among others.…”

Section: Introductionsupporting

confidence: 92%

Inflation targeting in Colombia, 2002-2012

Hamann¹,

Hofstetter²,

Urrutia³

2014

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After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflationtargeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. We examine the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. We study the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, we estimate a small-scale open-economy-policy-model.

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Section: Introductionsupporting

confidence: 92%

Inflation targeting in Colombia, 2002-2012

Hamann¹,

Hofstetter²,

Urrutia³

2014

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“…15 In the particular case of Colombia, included in his sample (43 countries, 24 of them developing economies, and annual data for the period 1983-2003), Razmi estimates the effect of a variation in the nominal exchange rate on import prices that is around 0.45, significant at the 5% level. Similarly, [Rowland, 2004], with a monthly time series analysis (1983)(1984)(1985)(1986)(1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002), reports a pass through coefficient of 0.48 from the nominal exchange rate to the import prices after three months and 0.8 after one year countries. 16…”

Section: Related Literaturementioning

confidence: 98%

Terms of trade and output fluctuations in Colombia

2013

CEPAL Review

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This paper explores the importance of the terms of trade to explain output fluctuations in Colombia, a developing country where almost 60% of the exports correspond to four commodities: oil (32%), coal (17%), coffee (5%) and nickel (2%), and where 80% of its imports are intermediate and capital goods. This research is motivated fundamentally by the particular importance of short run fluctuations in developing economies, the fact that the Colombian terms of trade are procyclical and the current debate in Colombia about eventual economic policies toward sterilization of the effects of changes in commodities prices in a context of an appreciation of the nominal exchange rate. The study includes a time series analysis, for the period 1994-2009 with quarterly data, which follows the Box-Jenkins methodology for an ARMAX model. I find robust evidence that indicates that the quarterly growth of GDP is positively and significantly affected by variations in the terms of trade, which explain 1/3 of GDP growth variability. This result is consistent with the possible outcome of the three-goods model for an open small economy in which the terms of trade can be the source of the aggregate output fluctuations.

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“…Conocer, por ejemplo, los efectos y el grado de traspaso de los choques a los tipos de cambio sobre los precios domésticos, se ha convertido en una herramienta necesaria para el diseño de la política monetaria (Rowland, 2003).…”

Section: Justificaciónunclassified

“…y 2002,Rowland (2003) encuentra que, a pesar de que el ERPT en Colombia es incompleto, los precios de importación responden relativamente rápido a modificaciones del tipo de cambio.Seguidamente indica como luego de 3 meses, el 48 % de las alteraciones sobre el tipo de cambio se transmiten a los precios de importación, y que luego de 12 meses se transmite el 80 % de las mismas.Éstos resultados implicarían que en el estudio aquí realizado el tipo de cambio entre el peso y el dólar debería ser comparativamente bastante relevante en comparación a los otros tipos de cambio, dado su considerable grado de transmisión a los precios de las importaciones.Los resultados encontrados porRincón (2000) yRowland (2003), que apuntan a que el ERPT es incompleto, son obtenidos también porRincón, Caicedo, y Rodríguez (2007) para precios de importación, pero específicamente de la industria manufacturera, razón por la cual no se profundiza en los hallazgos de este trabajo. Finalmente, el más reciente de los trabajos realizados para la economía colombiana que estudia los fenómenos del ERPT es el deGonzález et al (2008).…”

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Composición cambiaria y poder adquisitivo de las reservas internacionales

Gómez-Restrepo¹,

Hérnandez-Herrera²

2011

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ResumenUno de los principales motivos para acumular reservas internacionales es cubrir los egresos de la balanza de pagos ante una potencial escasez de divisas. Centrándose en el cubrimiento de los egresos por importaciones, se determina la composición cambiaria que mejor preserva el poder adquisitivo de las reservas en términos de una canasta de bienes importados ante variaciones en los tipos de cambio. Para esto, mediante el uso de modelos autorregresivos de tipo estructural, se considera el Exchange Rate Pass-Through de diversos tipos de cambio a los precios de los bienes importados, derivado de diferentes tipos de perturbaciones. Con los resultados de las estimaciones se realiza un ejercicio de aplicación para obtener una composición cambiariá optima de las reservas internacionales para Colombia según el enfoque tomado en este trabajo. Se resalta la preeminencia del dólar estadounidense y la importancia de mantener un portafolio diversificado. AbstractOne of the main reasons for accumulating international reserves is to cover balance of payments expenses against a potential foreign exchange shortage. Focusing on the coverage of import expenses, the currency composition that best preserves reserves' purchasing power in terms of a basket of imported goods against changes in exchange rates is determined. By using structural autoregressive models we consider the Exchange Rate Pass-Through of different exchange rates to prices of imported goods, derived from different types of disturbances. The estimates' results are applied in an exercise in which a optimum currency composition for Colombian international reserves accoding to this paper's focus is established, highlighting the preeminence of the U.S. dollar and the importance of maintaining a diversified portfolio. Clasificación JEL: C32; E58; F31.Palabras Clave: Reservas Internacionales, Composición Cambiaria, Pass-Through, Modelos SVAR.* Agradecemos a Marco Ruíz por sus valiosos comentarios y sugerencias. La serie Borradores de Economía es una publicación de la Subgerencia de Estudios Económicos del Banco de la República. Los trabajos son de carácter provisional, las opiniones y posibles errores son responsabilidad exclusiva de los autores y sus contenidos no comprometen al Banco de la República ni a su Junta Directiva.

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Exchange rate pass-through to domestic prices: the case of Colombia

Cited by 27 publications

References 28 publications

Inflation targeting in Colombia, 2002-2012

Inflation targeting in Colombia, 2002-2012

Terms of trade and output fluctuations in Colombia

Composición cambiaria y poder adquisitivo de las reservas internacionales

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