Recent Behavior of Output, Unemployment, Wages and Prices in Colombia:What went Wrong?

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Banco de la Republica de Colombia, Borradores de Economia, No: 249

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Arango-Thomas, Luis Eduardo; Iregui-Bohórquez, Ana María; Melo-Velandia, Luis Fernando
Banco de la República
Structural VAR,unemployment,monetary policy, wages, expectations; C40 - Econometric and Statistical Methods: Special Topics: General; E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity; Structural VAR; Unemployment; Monetary policy; Wages; Expectations; Política monetaria -- Colombia; Desempleo -- Colombia; Precios y salarios -- Colombia; E24 - Empleo; Desempleo; Salarios; Distribución intergeneracional de ingresos; Capital humano agregado; Productividad del trabajo agregada; C40 - Métodos econométricos y estadísticos: temas especiales: Generalidades
paper description
At the end of the last decade, the real activity in Colombia underwent the sharpest recession of the last fifty years. We postulate a non-triangular structural VAR model(Amisano and Giannini, 1997) to describe the dynamics of output, prices, unemployment and wages during the last two decades. The evidence suggests that, in the long-run, monetary policy has been neutral to both output and unemployment while the main reasons for the increase in the latter have been the lack of credibility of monetary policy, the way in which wages are set and the increase in non-wage labor costs.