Exchange Rate Bands and Shifts in the Stabilization Policy Regime: Issues Suggested by the Experience of Colombia

April 1, 1995

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Format: Chicago

Alberto Carrasquilla. Exchange Rate Bands and Shifts in the Stabilization Policy Regime: Issues Suggested by the Experience of Colombia, (USA: International Monetary Fund, 1995) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

After 25 years, the Colombian authorities decided to abandon the crawling peg exchange rate policy and implement a regime of nominal exchange rate bands. Initial conditions in Colombia contrast sharply with those of other cases in which bands were part of an ongoing effort to reduce high inflation. This paper argues that the change in regime was motivated by a change in policy objectives. Starting from a policy whose rationale implied targeting stable inflation, a simple analytical model of optimal policy is presented; initial results with the new regime suggest that inflation is now considered costlier and that policy implementation has been consistent with this new view.

Subject: Crawling peg, Exchange rate policy, Exchange rates, Foreign exchange, Inflation, Prices, Real exchange rates

Keywords: Anti-inflationary policy statement, Central bank, Crawling peg, Exchange rate band, Exchange rate policy, Exchange rates, Government credibility, Inflation, Inflation rise, Inflation variability, Nominal exchange rate, Private sector, Real exchange rates, Reducing inflation, Utility function, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1995/042
Stock No:

WPIEA0421995
ISBN:

9781451846188
ISSN:

1018-5941

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