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

Author/Editor:

Alberto Carrasquilla

Publication Date:

April 1, 1995

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.

Series:

Working Paper No. 95/42

Subject:

English

Publication Date:

April 1, 1995

ISBN/ISSN:

9781451846188/1018-5941

Stock No:

WPIEA0421995

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

40

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