bringing a dsge model into policy environment in colombia

Diego Rodríguez, September 22, 2006 Bringing a DSGE into Policy Environment in Colombia - p. 1/42

Bringing a DSGE Model into PolicyEnvironment in Colombia

Franz Hamann, Julián Pérez and Diego RodríguezBanco de la República de Colombia

http://www.banrep.gov.co



Monetary Policy in Colombia

● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization

Effect and importance of shocks

Using the Model





● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


Decision Making

■ Policy decision is taken by the Board of Governors



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


Decision Making

■ Policy decision is taken by the Board of Governors■ A single policy recommendation by the Deputy Governor



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


Decision Making

■ Policy decision is taken by the Board of Governors■ A single policy recommendation by the Deputy Governor■ The policy recommendation uses a battery of technical tools



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


Decision Making

■ Policy decision is taken by the Board of Governors■ A single policy recommendation by the Deputy Governor■ The policy recommendation uses a battery of technical tools■ Board decides whether to follow or not the recommendation



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


Decision Making

■ Policy decision is taken by the Board of Governors■ A single policy recommendation by the Deputy Governor■ The policy recommendation uses a battery of technical tools■ Board decides whether to follow or not the recommendation■ Governor communicates decision by Press Release



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


Decision Making

■ Policy decision is taken by the Board of Governors■ A single policy recommendation by the Deputy Governor■ The policy recommendation uses a battery of technical tools■ Board decides whether to follow or not the recommendation■ Governor communicates decision by Press Release■ In a TV broadcasted presentation explains the decision

(every quarter)



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Technology

■ The process to produce a policy recommendation is similarto other Central Banks



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Technology


■ Quarterly policy and forecasting rounds (with monthlyreviews)



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Technology



■ Tools for policy recommendation:◆ Assessment of current/future economic conditions◆ Conventional econometric techniques (VARS, SVARS,

VECS, etc.);◆ Subjective forecasting and sectoral experts;◆ Core Macroeconomic Model (small and semi-structural);◆ Other models: financial programming, balance of

payments, financial stability, among others;



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Technology



■ Tools for policy recommendation:◆ Assessment of current/future economic conditions◆ Conventional econometric techniques (VARS, SVARS,

VECS, etc.);◆ Subjective forecasting and sectoral experts;◆ Core Macroeconomic Model (small and semi-structural);◆ Other models: financial programming, balance of

payments, financial stability, among others;■ Judgment plays a prominent for the policy recommendation



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Demand

■ There is a demand for improving the structure of the currentCore Model



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Demand


■ The model does not consider important shocks: productivity,terms of trade shocks, remittances, etc.



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Demand



■ Need to understand the macroeconomic effects of theseshocks...



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Demand




■ And their impact on monetary policy, given the mandate tocontrol inflation.



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Demand





■ The result: need a structural model taylored to theColombian Economy.



● Decision Making

● The Technology

● The Demand

Stylized Facts

The Model

Parameterization


Using the Model


The Demand





■ The result: need a structural model taylored to theColombian Economy.

■ Notice that there is also a lot of judgment here too!!



Stylized Facts

● Capital Inflows Facts

● Capital Outflows Facts

● Capital Flows and EMBI+

● Capital Flows and RER

● Capital Flows and Investment

● Capital Flows and Asset Prices

● Capital Flows and GDP

● Remittances Shock

● What about Inflation?

● Inflation

● Inflation and RER

The Model

Parameterization


Using the Model


Stylized Facts



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Capital Inflows Facts

■ In Colombia, capital inflows have been accompanied by:



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model



■ In Colombia, capital inflows have been accompanied by:■ a significant nominal and real exchange rate appreciation

combined with low sovereign spreads,



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model




combined with low sovereign spreads,■ a boom in total credit (to the private and/or the public sector)

and domestic demand (consumption and investment),



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model





and domestic demand (consumption and investment),■ rapid growth in asset prices, not only stocks or financial

assets, but also non-traded assets (like house prices) and



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model





and domestic demand (consumption and investment),■ rapid growth in asset prices, not only stocks or financial

assets, but also non-traded assets (like house prices) and■ increased economic activity and employment.



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Capital Outflows Facts

■ In Colombia, capital outflows have been accompanied by:



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model



■ In Colombia, capital outflows have been accompanied by:■ a significant nominal and real exchange rate depreciation

combined with high sovereign spreads,



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model




combined with high sovereign spreads,■ a sharp reduction in total credit (to the private and/or the

public sector) and domestic demand (consumption andinvestment),



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model






■ collapse in asset prices, not only stocks or financial assets,but also non-traded assets (like house prices) and



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model






■ collapse in asset prices, not only stocks or financial assets,but also non-traded assets (like house prices) and

■ reduced economic activity and employment.



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Capital Flows and EMBI+



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Capital Flows and RER



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Capital Flows and Investment



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Capital Flows and Asset Prices



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Capital Flows and GDP



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Remittances Shock



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


What about Inflation?

■ Like many LACs, in Colombia inflation drop steadily duringthe nineties.



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model




■ In inflow periods nontradable inflation tends to increaserelative to tradable.



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model





■ In outflow periods tradable inflation tends to increase relativeto nontradable.



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model






■ There is low degree of pass through to total inflation.



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model






■ There is low degree of pass through to total inflation.■ A full-fledged IT regime started in September 1999



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Inflation



Stylized Facts










● Inflation


The Model

Parameterization


Using the Model


Inflation and RER



Stylized Facts

The Model

● A New Core Model

● Exogenous Variables

● Export Sector

● Nontraded Sector

● Import Sector

● Headline Inflation

● Households (1)

● Households (2)

● Households (3)

● Investment

● Government

● Closing the Model

Parameterization


Using the Model


The Model



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


A New Core Model

■ Small Open Economy Model with tradable and nontradablesectors.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


A New Core Model


■ Firms: export-oriented and nontradables.◆ Mining Exporting Firms (endowment). Perfect competition.◆ Non-mining Exporting Firms. Use capital and labor.

Perfect competition.◆ Nontradable Firms. Use capital and labor. Imperfect

competition.◆ Importing firms (a la Burstein et al.) Perfect competition.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


A New Core Model





■ Households: consume NT and imported goods. Inelasticlabor supply. Choose in which sector to work.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


A New Core Model






■ Imperfect capital mobility.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


A New Core Model






■ Imperfect capital mobility.■ Government: nontradable outlays, lump-transfers and Taylor

rule to meet inflation target.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables

■ Inflation Target, π.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables

■ Inflation Target, π.■ Terms of trade: price of imports, PM?

t and exports, PX?t .



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables



■ Mining sector: mining prices, P e∗t , and endowment, ye

t .



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables




t .■ US Nominal Interest rate, i∗t .



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables




t .■ US Nominal Interest rate, i∗t .■ Sovereign spread shock, εt.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables




t .■ US Nominal Interest rate, i∗t .■ Sovereign spread shock, εt.■ Net foreign transfers, TRt.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables




t .■ US Nominal Interest rate, i∗t .■ Sovereign spread shock, εt.■ Net foreign transfers, TRt.■ Public expenditure, gt.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables




t .■ US Nominal Interest rate, i∗t .■ Sovereign spread shock, εt.■ Net foreign transfers, TRt.■ Public expenditure, gt.■ TFP in exporting sector, AX

t .



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Exogenous Variables




t .■ US Nominal Interest rate, i∗t .■ Sovereign spread shock, εt.■ Net foreign transfers, TRt.■ Public expenditure, gt.■ TFP in exporting sector, AX

t .■ TFP in nontradable sector, AN

t .



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Export Sector

■ Total value of production:

stPe∗t ye

t + stPX∗

t yXt + PN

t yNt

where st is the nominal exchange rate, ye is exogenous and

yXt = AX

t

(kX

t

)αX (lXt)1−αX

yNt = AN

t

(kN

t

)αN (lNt)1−αN

■ Perfect competition implies P e∗ and PX∗ are exogenous.■ Optimization in non-mining export firms:

wXt =

PXt

Pt

(1 − αX)yX

t

lXt

rXt =

PXt

Pt

αX yXt

kXt



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Nontraded Sector

■ Imperfect Competition and cost minimization implies:

wNt = RMCN

t (1 − αN )yN

t

lNt

rNt = RMCN

t αN yN

t

kNt

■ Calvo pricing with backward indexation:

ΠNt =

(εΠ

(1−θ)t−1 + (1 − ε)

(P̃N

t

PNt

)Π

N(1−θ)t

) 1

1−θ



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Import Sector

■ Two-part pricing: price-at-the-dock and distribution costs.

PMt = stP

M∗

t + ηPNt

■ This implies that imported inflation is:

ΠMt = Π̃M

t

RERt−1

RERt−1 + η+

η

RERt−1 + ηΠN

t

where RER =stP

M∗

t

P Nt

and Π̃Mt is the imported inflation at the

dock.■ Notice that this implies an imperfect pass through.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Headline Inflation

■ Total inflation is a combination of imported and non tradedinflation.

Πt =

[(γ)

((1 + πM

t

) PMt−1

Pt−1

)1−ω

+ (1 − γ)

((1 + πN

t

) PNt−1

Pt−1

)1−ω] 1

1−ω

■ Exchange rate affects imported inflation.■ Nominal rigidities in non traded sector hit both types of goods.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Households (1)

Objective:

maxE0

∞∑

t=0

βt c1−σt

1 − σ

s.t. :

Pt

[ct + xN

t + xXt

]+ (Bt+1 −Bt) + stFti

et ≤

Pt

[wt(l

Xt + lNt ) + rX

t kXt + rN

t kNt + π

]+ itBt + st(Ft+1 − Ft) + stTRt

where x is investment, F is net foreign debt, B are nominaldomestic bonds, ie is the cost of borrowing abroad, TR are netforeign transfers and π are firms profits.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Households (2)

Consumption is a compound of imported and non tradedgoods:

ct =

[γ

1

ω

(cNt)ω−1

ω + (1 − γ)1

ω

(cMt)ω−1

ω

] ωω−1

so, demands for both goods are:

cNt = (1 − γ)

(PN

t

Pt

)−ω

ct

cMt = γ

(PM

t

Pt

)−ω

ct

where ω > 0 is the elasticity of substitution between importedand non traded goods.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Households (3)

Optimality conditions with respect to foreign bonds:

1

1 + iet= βEt

[c−σt

c−σt+1

Pt

Pt+1

st+1

st

]

and domestic bonds:

1

1 + it= βEt

[c−σt

c−σt+1

Pt

Pt+1

]



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Investment

In the export sector:

kXt+1 = (1 − δX)kX

t + xXt −

Φ

2

(xX

t

kXt

− δX

)2

kXt

and in the non traded sector:

kNt+1 = (1 − δN )kN

t + xNt −

Φ

2

(xN

t

kNt

− δN

)2

kNt

where δj is the depreciation in sector j = X,N and Φ is a realadjustment cost.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Government

■ Taylor Rule:

it = ρit−1 + (1 − ρ)

[int + ϕπ(πt − π) + ϕy

(yt

yt−1− 1

)]

■ Lump sum taxes and unproductive expenditures in nontraded goods.



Stylized Facts

The Model



● Export Sector


● Import Sector


● Households (1)

● Households (2)

● Households (3)

● Investment

● Government


Parameterization


Using the Model


Closing the Model

The cost of foreign borrowing is:

iet = i∗t + εtψ[exp(Ft − F ) − 1

]

where i∗ is the external interest rate, ε is a sovereign spreadshock and Ft is the stock of net foreign debt.



Stylized Facts

The Model

Parameterization

● Calibration

● Bayesian estimation

● Prior and Posterior Distributions


Using the Model


Parameterization



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Calibration

■ Set parameters to be consistent with long run restrictionsimplied by the model and the data.



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Calibration


■ Build a model-consistent database (National Accounts to 3sector database)



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Calibration



■ Compute model-consistent great ratios and detrend timeseries



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Calibration



■ Compute model-consistent great ratios and detrend timeseries

■ Set parameters to match great ratios and volatility ofinvestment and current account



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Bayesian estimation

■ For a given set of parameters we find the state transitionequation



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Bayesian estimation


■ Add a measurement equation to the model dynamics to getits state space representation



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Bayesian estimation



■ Use Kalman filter to obtain the likelihood function of themodel



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Bayesian estimation




■ Combine the likelihood function with the prior distribution ofthe parameters to compute the posterior density



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Bayesian estimation




■ Combine the likelihood function with the prior distribution ofthe parameters to compute the posterior density

■ Using numerical optimization compute the mean of theposterior density and use a Metropolis-Hasting algorithm toget the posterior distribution of the parameters



Stylized Facts

The Model

Parameterization

● Calibration




Using the Model


Prior and Posterior Distributions

Table 1: Prior and Posterior DistributionsParameter Prior Distribution Prior mean Prior Std Dev Posterior Mean Posterior Conf. Interval

σ Normal 0.2 0.1 0.2124 0.1338 0.2901

λs Uniform [0,1) 0.5 0.2887 0.4341 0.3296 0.5472

λπ Normal 1.5 0.25 1.6753 1.3261 1.9504

λy Normal 0.125 0.125 -0.0423 -0.2055 0.2171

ρAT Uniform [0,1) 0.5 0.2887 0.0188 0.0002 0.0466

ρAN Uniform [0,1) 0.5 0.2887 0.2242 0.0487 0.4254

ρR∗ Uniform [0,1) 0.5 0.2887 0.5251 0.1309 0.9878

ρP X Uniform [0,1) 0.5 0.2887 0.1177 0.0000 0.1112

ρye Uniform [0,1) 0.5 0.2887 0.4740 0.0747 0.9708

θ Gamma 6 1.42 3.8275 2.6328 5.6365

σAT Inv. Gamma 0.1 ∞ 0.1374 0.0243 0.2023

σANT Inv. Gamma 0.1 ∞ 0.2640 0.2162 0.3186

σR∗ Inv. Gamma 0.1 ∞ 0.0911 0.0274 0.1277

σP X Inv. Gamma 0.5 ∞ 0.2691 0.1954 0.4098

σye Inv. Gamma 0.1 ∞ 0.0392 0.0230 0.561

σµ Inv. Gamma 0.05 ∞ 0.0271 0.0220 0.0315



Stylized Facts

The Model

Parameterization


● Oil shock

● Terms of trade shock

● Monetary policy shock

● Importance shocks

Using the Model





Stylized Facts

The Model

Parameterization


● Oil shock




Using the Model


Oil shock

5 10 15 20−0.02

−0.015

−0.01

−0.005

0r

5 10 15 200

0.02

0.04

0.06y

5 10 15 200

0.01

0.02

0.03c

5 10 15 200

0.05

0.1

0.15

0.2xn

5 10 15 200

0.05

0.1

0.15

0.2xt

5 10 15 20−0.06

−0.04

−0.02

0

0.02RER

5 10 15 20−0.02

−0.015

−0.01

−0.005

0pi

5 10 15 20−0.02

−0.01

0

0.01TB



Stylized Facts

The Model

Parameterization


● Oil shock




Using the Model


Terms of trade shock

5 10 15 20−0.06

−0.04

−0.02

0r

5 10 15 200

0.05

0.1

0.15

0.2y

5 10 15 200

0.02

0.04

0.06c

5 10 15 200

0.1

0.2

0.3

0.4xn

5 10 15 200

0.1

0.2

0.3

0.4xt

5 10 15 20−0.15

−0.1

−0.05

0

0.05RER

5 10 15 20−0.06

−0.04

−0.02

0pi

5 10 15 20−0.06

−0.04

−0.02

0

0.02TB



Stylized Facts

The Model

Parameterization


● Oil shock




Using the Model


Monetary policy shock

5 10 15 20−5

0

5

10x 10

−3 r

5 10 15 20−4

−2

0

2x 10

−3 y

5 10 15 200

1

2

3

4x 10

−3 c

5 10 15 20−0.02

0

0.02

0.04xn

5 10 15 20−0.04

−0.02

0

0.02xt

5 10 15 20−0.04

−0.02

0

0.02RER

5 10 15 20−0.03

−0.02

−0.01

0pi

5 10 15 20−6

−4

−2

0

2x 10

−3 TB



Stylized Facts

The Model

Parameterization


● Oil shock




Using the Model


Importance shocks

Table 2: Variance Decomposition (in percent)

Traded TFP Non traded TFP Foreign Int. Rate Export Prices Mining Monetary Policy

Interest Rate 7.36 56.53 0.90 28.66 6.13 0.42

Output 8.02 51.88 0.34 31.95 7.73 0.09

Consumption 8.81 47.22 0.71 35.39 7.72 0.15

Invest.Non traded 8.17 51.15 0.76 32.54 7.19 0.19

Invest.Traded 7.94 52.63 0.79 31.56 6.87 0.22

RER 14.88 13.13 1.15 61.40 7.25 2.19

Inflation 7.35 54.13 1.10 28.21 5.49 3.71



Stylized Facts

The Model

Parameterization


Using the Model

● Forecasting Performance(1)

● Forecasting Performance (2)


Using the Model



Stylized Facts

The Model

Parameterization


Using the Model




Forecasting Performance(1)

Table 3: Forecasting errors in percent

Quarters Annual Inflation Annual Inflation real GDP gap GDP

MTYNO MMT MTYNO MMT

1 0.33 0.27 1.14 1.062 0.46 0.38 1.60 1.063 0.59 0.50 1.75 1.164 0.81 0.61 1.91 1.145 0.95 0.73 2.03 1.196 1.16 0.58 2.41 1.217 1.28 0.60 2.66 1.338 1.28 0.59 2.09 1.449 1.40 0.64 0.67 1.04



Stylized Facts

The Model

Parameterization


Using the Model




Forecasting Performance (2)

Table 4: Forecasting errors in percent

Quarters Ahead Real Exchange Rate GDP growth

MTYNO MTYNO

1 10.11 0.312 11.74 0.673 13.30 1.074 14.52 1.485 14.95 1.586 19.51 1.497 24.11 1.518 27.55 1.469 24.15 1.11


bringing a dsge model into policy environment in colombia

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