Browsing by Author "Torres-Gutiérrez, Carlos"
Now showing 1 - 20 of 27
Results Per Page
Sort Options
- Dinámica inflacionaria y la nueva curva de Phillips Neokeynesiana en Costa RicaThis paper reviews the historic evolution of the literature on the Phillips Curve, highlighting the significant changes experienced over time, and estimates a New Keynesian Phillips Curve (NKPC) specification for Costa Rica using quarterly data over the period 1989-2002. Our literature review reveals an on going debate in relation with the existence of a Phillips Curve. The empirical evidence gathered in this document proves the applicability of the NKPC specification for Costa Rica. Our estimates show that the Phillips Curve is relatively elastic in the short run, indicating that expansive monetary policies can stimulate output growth in the short run at the cost of higher inflation and a sub-optimal monetary policy. But, in the long run, the NKPC is perfectly inelastic, leaving almost no space for such dynamically inconsistent policies, since they would prove ineffective in terms of output and absolutely inflationary according to the “Inflation Accelerator Principle”. An implication of the large effect that devaluation has (according to our estimates) on inflationary expectations, is that setting the exchange rate peg at a level consistent with inflationary targets is a fast and effective way of controlling inflation. Hence, assuming some slack in the international monetary reserves level and the current account deficit, reducing the devaluation rate is a viable option to reduce inflation in the short run, ceteris paribus, even if this implies pressures on the current account and eventual losses in monetary reserves.
- Dinámica inflacionaria y persistencia en Costa Rica: Periodo 1953-2009The paper adopts a univariate time series approach to estimate inflation persistence in Costa Rica in the period 1953-2009, defined as the speed at which the monthly inflation rate returns to its long-term equilibrium value after a shock. According to empirical evidence, when it is assumed that the average inflation rate remains unchanged in the period of study, the inflation is a highly persistent process (0.78). However, if it is recognize that this value changes depending on structural breaks and internal and external inflationary shocks, the estimated inflation persistence is reduced significantly (0.18) but would be influenced by the initial extended period of low inflation. When studying the most recent period (1997-2009), the estimate of inflation persistence is greater (between 0.31 and 0.42), and no evidence of structural change is found in the average monthly inflation rate due to adoption of the exchange rate band regime. A structural break is detected only if the same number of observations is taken into account before and after the date of adoption of the new exchange rate regime (October 2006), but the estimate of persistence does not change in statistical terms (0.47). When indirect evidence is used and alternative definitions of persistence are tested, the estimates obtained cover a wider range (0.53 to 0.93) and long periods of lag (22 to 33 months). However, it is possible that these alternative measures overestimate the persistence of inflation, given the use of annual growth rates. The main implication for monetary policy is that, given the dependence of current inflation not only on their short and long-term determinants but also on shocks from earlier periods, controlling inflation becomes a problem that is more complex than the simple handling of an interest rate of short-term monetary policy, gaining importance also the control of the main sources of inflation persistence reported in the literature, such as the very volatility of inflation, the mechanisms of price and wage indexation and problems of anti-inflationary policy credibility.
- Indicadores de seguimiento del tipo de cambio nominal costarricenseIn this paper we construct a series of daily monitoring indicators of the trend and volatility of the Costa Rican nominal exchange rate, both for 2008 and 2009, and for the first quarter of 2010. These instruments are based on theoretical developments in Technical Analysis of asset markets. The aim is that these indicators complement the signals provided by other technical tools and the study of real and financial fundamentals of the domestic exchange market, even including geopolitical factors that may also influence the expectations of economic agents. 1 Departamento de Análisis y Asesoría Económica. Email: quirossj@bccr.fi.cr 2 Departamento de Investigación Económica. Email: torresgc@bccr.fi.cr Our review of the empirical evidence supports the advisability of using the Moving Average Combination indicator and the Moving Averages Convergence-Divergence Moving Average (MACD) additional tools for monitoring the trend of the Costa Rican nominal exchange rate. However, when both indicators are applied to the closing exchange rate on the wholesale market (MONEX), instead of the effective exchange rate of the retailer market, the signals seem to be clearer. We also recommend to include the Average True Range (ATR) and the Relative Volatility Index (RVI) to monitor the exchange rate variability in Costa Rica. In the case of the RVI, their signals should be taken with caution for now (while greater exchange rate flexibility is achieved and the deepening the foreign exchange market further advances), but these signals may be helpful to give an idea of the likely direction of the risk concentration of changes in the exchange rate in the short term. Both indicators confirmed the expected inverse relationship between the degree of Central Bank intervention on the exchange rate band and the level of exchange rate volatility during much of 2008 and the first half of 2009. Finally, although the Costa Rican foreign exchange market conditions prevailing at the beginning of our research (market in trend) limited the group of selected indicators to implement, the greatest fluctuation exhibited by current exchange rate now allows the application of a broader range of daily Technical Analysis indicators of financial markets.
- Un modelo de formación de expectativas de inflación para Costa RicaIn this document we developed a quarterly model that describes the way economic agents form their inflation expectations in Costa Rica. The model considers as main determinants the CB’s inflation target announced in its monetary program; the imported inflation in domestic currency (joint effect of international inflation and devaluation of the nominal exchange rate), and past misalignments between observed inflation and the inflation target. The results show a high influence of the inflation target on the inflationary expectations, which suggests a high degree of credibility in the performance of monetary authorities, however such credibility is not perfect because economic agents adjust the CB’s inflation target by the deviations of past inflation from the corresponding target and the imported inflation. These results highlight, under the current exchange rate regime, the importance of coherency between exchange rate policy and the inflation target set by the central bank.