Inflation, Uncertainty, and Growth in Colombia

IMF Working Papers, November 1, 1998

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Inflation, Uncertainty, and Growth in Colombia

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Bibliographic details

• Authors: Henry Ma
• Published: November 1, 1998
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451981582.001

Summary and central argument

• The paper investigates the relationship between inflation, inflation uncertainty, relative price dispersion, and real GDP growth in Colombia.
• Main finding: the rise of inflation in Colombia, from low levels in the 1950s to average rates of 18–22 percent since the 1970s, has been accompanied by increased uncertainty and relative price dispersion; and inflation has had a negative and persistent effect on real GDP growth.
• The analysis is framed by the proposition that higher levels of inflation lead to greater uncertainty about future inflation and to greater dispersion of relative prices, reducing the efficiency of market prices in coordinating economic activities.

Empirical findings and measurements

• Historical inflation trajectory described: low levels in the 1950s rising to average rates of 18–22 percent since the 1970s.
• Observed consequences associated with higher inflation:
  • Increased inflation uncertainty.
  • Increased relative price dispersion.
  • A negative and persistent effect on real GDP growth.

Methods and keywords

• Methodological note: the paper lists "VAR" among its keywords, implying vector autoregression methods are part of the empirical approach.
• Keywords included: consumer price inflation, forecasting inflation, inflation, inflation hedge, inflation increase, inflation lead, inflation level, inflation risk premium, inflation shock, inflation uncertainty, price dispersion, relative price dispersion, VAR, WP.

Policy relevance and implications

• Implicit implication: reducing inflation may lower inflation uncertainty and relative price dispersion, thereby improving the efficiency of market prices and supporting real GDP growth.
• The negative and persistent effect of inflation on growth suggests policy measures to maintain low and stable inflation could have long-term growth benefits.

Content in this bundle

• Inflation, Uncertainity, and Growth in Colombia - WP/98/161
  • Inflation, Uncertainity, and Growth in Colombia - WP/98/161 (Markdown version)
  • Inflation, Uncertainity, and Growth in Colombia - WP/98/161 (PDF)