A model of imperfect credibility, in the spirit of Bertola and Svensson, is derived and estimated using Colombian data. The main feature of the model is that central-parity depreciation expectations are endogenous with respect to the position of the exchange rate inside the target zone. (DSE/DÜI)

Over the last decade, many countries in Latin America have eliminated interest rate ceilings, reduced reserve requirements, and stopped direct credit controls. These market-oriented reforms have encouraged financial deepening, thereby producing considerable economic benefits to the countries....