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...

En los últimos años se ha desarrollado en la literatura internacional una corriente de estudio enfocada aexaminar los efectos del libre comercio sobre la inflación. Este trabajo pone a prueba la hipótesis de unaconexión entre el grado de apertura de la economía colombiana y su tasa de...

Empleando un modelo de equilibrio general dinámico y estocástico para una economía pequeña y abierta con imperfecciones y rigideces en el sector no transable calibrado para Colombia, se estudia la conveniencia de que la autoridad monetaria fije como medida de inflación objetivo en su...

The sudden collapse of oil prices poses a challenge to inflation targeting central banks in oil exporting economies. This paper illustrates that challenge and conducts a quantitative assessment of the impact of permanent changes in oil prices in a small and open economy, in which oil represents...

This paper analyses the role of a costly financial system in the transmission of monetarypolicy. The new-keynesian model for a small open economy is extended with asimple financial system based in Hamann and Oviedo (2006). The presence of the financialintermediation naturally allows the...

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...

In this paper we set up a small open economy model with financial frictions, following Curdia and Woodford (2010)’s model. Unlike other results in the literature such as Curdia and Woodford (2010), McCulley and Ramin (2008) and Taylor (2008), we find that optimal monetary policy should not...

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...

We study financial crises in a small open production economy subject to credit constraint and uncertainty on the value of debt repayments. We find that the possibility of reducing the severity of future crises encourages the central planner (CP) to increase both the crisis frequency and current...

We argue that international lenders take into account that taxes (or subsidies) affect borrowers’ available income for debt repayments. Using an endowment-economy model, we show that by incorporating this fact into the analysis of ?financial crises from the pecuniary externality perspective,...