An Optimal Taylor Rule for Colombia, 1991-2006

In this article, an open-economy optimal monetary rule is estimated for Colombia over the period 1991-2006 using the Generalized Method of Moments (GMM). The results show that in 1991-1999 the monetary authorities had two targets: one for the inflation rate and another for the exchange rate. In contrast, the exchange rate did not seem to be a concern for the monetary authorities during 2000-2006, or at least they did not use the interest rate to address such a goal. The output gap is statistically significant in both sub-periods, but the magnitude of its coefficient is practically negligible.