The Transmission of Monetary Policy in Costa Rica, 2011-2022
Published in None, 2023
Abstract This work seeks to address the question of how changes in the monetary policy rate in Costa Rica were transmitted to the price level and economic activity during the period 2011-2022. Thus, unlike previous studies, this research includes a new period during which a series of monetary policy modernizations took place, such as the adoption of the Monetary Policy Rate and the transition to more flexible exchange rate regimes. To answer the question, an analysis of autoregressive vectors (VAR) with a transmission channels model was carried out. It is found that the policy rate has a significant effect on the price level observed in the economy but not on economic activity, which would support the view of money neutrality. Additionally, evidence is found that the Central Bank’s contractionary policy actions serve to raise inflation expectations, which could reflect that individuals perceive the bank’s interventions as a signal of higher future inflation. Finally, the direct effect of some transmission channels, such as the exchange rate, on inflation and output is briefly discussed.
Info Work in progress, with Daniel Aguilar. Spanish draft titled Política monetaria en Costa Rica: efectos y transmisión en el periodo 2011-2022. Please find the pdf here and the Python code here.