Federal reserve and Banco de la República’s monetary policy: between orthodoxy and infla tionary pressures. Asimetries in monetary policy transmission

Abstract

This paper compares the monetary policy in the cases of the Federal Reserve in the American Economy and the Central Bank in Colombia that follows an inflation policy, by analyzing the effects of the shocks produced by movements in the rate of interest, essential instrument of the policy, over inflation, credit and financial markets by using a structural VAR. From the results, it concludes that the monetary policy transmission is faster in the American case. In the Colombian case, the monetary policy effect works slowly and generates an important volatility in the credit demand and the rates of interest of the public debt too. The control of the demand inflationary pressures is more complicated in the Colombian case respect to America. It requires from the Central Bank in Colombia a less accommodating policy in order to get a long term price stability, which in an open economy is subject to the development of the financial and credit markets, notwithstanding the policy adopted by the central bank.