Inflation targeting, sudden stops and the cost of fear of floating

Gómez-Pineda, Javier G.

Inflation targeting, sudden stops and the cost of fear of floating

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Borradores de Economía; No. 276

Date published

2004-02-16

Date

2004-02-16

Authors

Gómez-Pineda, Javier G.

Document language

spa

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Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

Abstract

Sudden stops seem to create the perfect environment for disinflation, especially when central banks defend the exchange rate by increasing interest rates. We propose a variation of the output gap model that incorporates the sudden stop shock. The use of t