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...

In this paper we survey prominent theories that have shaped the literature on sterilized foreign exchange interventions. We identify three main strands of literature: 1) that which advocates the use of sterilized interventions; 2) that which deems sterilized interventions futile; and 3) that...

When managing international reserves, central banks generally face the problem of determining what their optimum or adequate level is. A critical review of some methodologies for calculating the optimum amount of reserves is presented in this document. Also, a combination of international...

International reserves are very important for emerging economies, as they allow to buffer possible liquidity vulnerabilities within a countries' balance of payments. Consequently, the issue of how many reserves should each country hold is a relevant issue for economic policy. The literature has...

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...

El artículo hace una narración de la política monetaria en Colombia. Por ser una narración de la política monetaria en una economía abierta, el artículo hace énfasis en los conceptos de trilema de la política monetaria, ancla nominal y regimenes monetarios. Además, la narración...

The role of the exchange rate and the exchange rate regime in the monetary policy decision-making process in Colombia is described. The rationale for the intervention of the Central Bank in the FX market is explained and the experience in this regard is reviewed. Special attention is given to...

We embed a small open economy model for Colombia into the global risk model of Gómez-Pineda, Guillaume, and Tanyeri (2014). The small open economy model is estimated by Bayesian methods and used for analysis and projections. The model enable us to give a consistent treatment of shocks to global...

Asset prices have recently become a common topic in economic debate. Nevertheless, much time has been spent in determining if they effectively exhibit a bubble component, and not in examining whether asset prices affectively contain relevant information concerning future market developments....