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An Econometric Model of Colombia: A Prototype Devaluation View
Kanta Marwah
Abstract
As of many developing countries, the foreign sector is a key determinant of the Colombian economy. Colombia has a complicated system of multiple exchange rates and many times the "peso" has been devalued to meet the real and the financial problems of the foreign sector. In order to appraise the effectiveness of devaluation and to analyze its direct and indirect impact on the economy, a complete econometric model of Colombia has been developed. A free exchange rate has been treated as an explicit endogenous variable. Alternative policy solutions under "status quo" assumptions and under controlled assumptions with respect to devaluation have been generated.
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