La Demanda de Dinero en Colombia

En este artículo estimamos la demanda de dinero en Colombia introduciendo una variable para la innovación financiera. Al introducir la innovación financiera obtenemos un vector cointegrante que puede interpretarse como una demanda de dinero pues los coeficientes son teóricamente plausibles. Mostramos que si no se incluye la innovación financiera hay error de especificación en el modelo. Probamos que la demanda de dinero es homogénea y por lo tanto puede interpretarse en una variedad de formas, una de ellas, como la teoría cuantiativa del dinero. Las pruebas de exogenidad débil indican que la variable endógena es el dinero, por lo tanto en Colombia la ecuación cuantitativa puede interpretarse en el sentido de Friedman (1956), es decir, como una teoría de la demanda de dinero. Finalmente, estimamos la velocidad circulación del dinero M1 y M0 como función de la tasa de interés y la innovación financiera. A lo largo del artículo utilizamos una técnica de enorme utilidad en la práctica de la econometría, los promedios geométricos.

Wage Indexation, Inflation Inertia, and the Cost of Disinflation

What are the consequences of wage negotiations on monetary policy in acountry that is in transition to lower inflation? We show that wageindexation to expected inflation, increased central bank credibility and ahigher frequency of wage adjustments can increase the effect of monetarypolicy and can decrease the cost of disinflation. Important welfare gainscan be obtained with the best possible performance in the pursuit ofinflation targets and with the highest possible precision in inflationforecasts since these actions increase central bank credibility. Wage policieslike the one proposed by the Colombian Constitutional Court can haveimportant negative consequences on output and real wages.wage indexation, disinflation, sacrifice ratio, staggered wage contracts,credibility.

Wage Indexation, Inflation Inertia, and the Cost of Disinflation

A Statement of the Colombian Consitutional Court has mandated wage indexation on the basis of past inflation. A simple model with a wage price system, a real block, and an inflation targeting interest rule is calibrated to resemble price setting in the colombian economy and to analize the differing slope of the output inflation trade off for diferent specifications of wage indexation. The disinflation experiments show that backward looking indexation increases inflation inertia, decreases the effect of monetary policy, and increases the cost of disinflation. Shorter wage contracts and more frequent wage negotiations do not appear to have important effects on the cost of disinflation. Higher central bank credibility and the use of forward looking inflation expectations in wage negotiations decrease the cost of disinflation and may eventually lead to a boom.

Inflation Targeting, Sudden Stops and the Cost of Fear of Floating

Sudden stops seem to create the perfect environment for disinflation, especially when central banks defend the exchange rate by increasing interest rates. We propose a variation of the output gap model that incorporates the sudden stop shock. The use of the model in policy analysis shows that fear of floating is pro-cyclical and inflation targeting, counter-cyclical. The model is run for Brazil, Colombia, Korea and Thailand, the inflation targeting countries that have recently had sudden stops. The three policy implications direct attention to the medium and long run. First,the central banks that are targeting inflation should focus on inflation, not during but after the sudden stop. Second, they could complement this medium term view by monitoring a measure of inflation of non traded goods. Third, the monetary authorities could eventually introduce an escape clause to the CPI inflation target under a sharp depreciation.

Capital Flows and Monetary Policy

Capital flows often confront central banks with a dilemma: to contain the exchange rate or to allow it to float. To tackle this problem, an equilibrium model of capital flows is proposed. The model captures sudden stops with shocks to the country risk premium. This enables the model to deal with capital outflows as well as capital inflows. From the equilibrium conditions of the model, I derive an expression for the accounting of net foreign assets, which helps study the evolution of foreign debt under di¤erent policy experiments. The policy experiments point to three main conclusions. First, interest rate defenses of the exchange rate can deliver recessions during capital outflows even in financially resilient economies. Second, during unanticipated reversals in capital inflows, the behavior of foreign debt is not necessarily improved by containing the exchange rate. Third, an economy can gain resilience not by simply shifting the currency denomination of debt, but by both, shifting the denomination and floating the currency.Sudden stops; Credit booms; Country risk; Fear of floating; Debt sustainability

An Empirical Model of International and Domestic Food Inflation

En empirical model of the pass-through of international to domestic food inflation is proposed. The key liking variable between international and domestic food inflation of food products in the PPI for food imports and exports. Not only the inflation rates of the relevant countries but also their exchange rates can exert important influences on the prices of imported and exported food products.Food inflation, International food inflation. Classification JEL: E17.

A Framework for Macroeconomic Stability in Emerging Market Economies

In this paper, sectoral balance sheets and sectoral stock and flow consistency are embedded into a new open economy model based on the financial accelerator. The framework has nominal inertia, real rigidities and market frictions, and it is designed to evaluate exchange rate risk in the economy and across sectors. The model is perturbed by a shock to investor sentiment and a sudden stop to capital inflow. It is used to evaluate the claims that usually back the fear of floating strategy: the effect of the exchange rate on foreign debt, and the pass-through of exchange rate depreciation to inflation. We conclude that fear of floating, the policy that intends to stabilize foreign debt, is precisely the policy that leads to a higher increase in the government debt to GDP ratio. The reason is that, in order to control the exchange rate, the authorities have to increase interest rates. While a lower depreciation does contain the level of debt, it increases the cost of interest on the debt, and this increases the change in the debt to GDP ratio. The pass-through does not seem an important argument for fear of floating either. We also find that under fear of floating the transfer problem is solved by the private sector alone in the midst of a recession; and that under floating, the government balance is in surplus thereby contributing to the transfer..

Dating Recessions from Industrial Production Indexes: An Analysis for Europe and the US

In this paper we analyze the business cycles of 15 European countries and the US. We locate the expansionary and recessionary periods by dating the turning points of an industrial production index using the Bry-Boschan procedure. We find that there is high concordance in the business cycles of European countries, especially in terms of the characteristics of the cycle phases (duration and amplitude of expansions and contractions). However, some significant differences still persist, most notably in the concordance of peaks and troughs and in the cycles of a set of non-core countries, which includes Finland, Greece and, less so, Ireland and Italy.

Land, Environmental Externalities and Tourism Development

In a two sectors dynamic model we analyze the process of tourism development based on the accumulation of capital (building of tourism facilities) and the reallocation of land from traditional activities to the tourism sector. The model incorporates the conflict between occupation of the territory by the tourism facilities, other productive activities and availability of cultural, natural and environmental assets that are valued by residents and visitors. We characterize the process of tourism development in two settings: the socially optimal solution and a situation where the costs of tourism expansion are external to the decision makers, where externalities on residents as well as intraindustry externalities are considered. Regarding the optimal solution, we show that it is optimal to limit tourism expansion before it reaches its maximum capacity even in a context where the economic attractiveness of tourism relative to other productive sectors rise continuously. However, in this context and when all the costs of tourism development are externalities the only limit to tourism quantitative expansion is its maximum capacity determined by the availability of land. Finally, we show that excessive environmental degradation from the future generations’ point of view is not a problem of discounting the future but rather a problem of externalities that affects negatively the current and future generations.Intertemporal land allocation, Structural economic change, Tourism industry