Placeholder canvas
Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors
Search in posts
Search in pages

Go Home

Central Bank of Colombia Explores Monetary Policy

Nov 5, 2020 | Cases

The Pontificia Universidad Javeriana (Columbia) and the Central Bank of Colombia cooperated in an effort to recast the bank’s MTM (Mechanism of Transmission Model) into a system dynamics model. This joint effort represents an application of system dynamics to macroeconomics.

There are three options for a central bank to achieve its monetary goals: controlling the base money growth, inflation targeting and implementing a fixed exchange rate regime. The monetary policy of the Central Bank of Colombia (Banco de la República) is directed at keeping inflation to a minimum.

This strategy consists, basically, of controlling the interest rate in such a way, that the inflation forecast be aligned with the inflation target.

After simulating the system dynamics model for shocks to the inflation target and monetary policy, the pattern of performance of the variables in the SD model, was quite similar to that of the MTM. The only difference occurred in a downward jump of depreciation in the first year of the simulation. This performance makes a noticeable difference between the SD and MTM results when shocks are applied to food supply, nominal depreciation, and risk premium.

In spite of the differences, the TREND function seems to be an appropriate way to capture adaptive expectations in this model.

The Central Bank of Colombia concluded that the system dynamics model is similar the MTM model in important respects.

The bank continues to support efforts to build a comprehensive system dynamics model supporting its monetary policies.

Client Central Bank of Colombia
Authors/Consultants Fernando Arenas and Franz Hamann

Do you want to know more?

OTHER SUCCESSFUL APPLICATIONS

System Dynamics Helps Farmers Escape Poverty Trap in Guatemala

System Dynamics Helps Farmers Escape Poverty Trap in Guatemala EXECUTIVE Summary Guatemala holds the 4th highest global ranking for chronic malnutrition, and climate change is intensifying the challenges subsistence farmers face in providing food for their families....

Twinings Uses System Dynamics Games to Enhance HR Capability

Twinings Uses System Dynamics Games to Enhance HR Capability “Realistic simulation is a powerful approach to building capability. The business simulation developed [by Dashboard Simulations and Lane4] gave [Twinings staff] an experience that called for them to develop...

Upcoming Events

Recent Posts

Call for Presenters: Seminar Series

Call for Presenters: Seminar Series We at the System Dynamics Society are continually seeking vibrant and knowledgeable presenters for our ongoing Seminar Series. As we unfold the calendar, there’s always a place for more insights, experiences, and expertise to enrich...

From Bergen to Global: UiB’s System Dynamics Group

From Bergen to Global: UiB’s System Dynamics Group The System Dynamics Group, an autonomous research group at the University of Bergen (UiB) was established in 1971 by professor emeritus Svein Nordbotten. Inspired by the work of Jay W. Forrester, Nordbotten...

Join us

OTHER SUCCESSFUL APPLICATIONS

System Dynamics Helps Farmers Escape Poverty Trap in Guatemala

System Dynamics Helps Farmers Escape Poverty Trap in Guatemala EXECUTIVE Summary Guatemala holds the 4th highest global ranking for chronic malnutrition, and climate change is intensifying the challenges subsistence farmers face in providing food for their families....

Twinings Uses System Dynamics Games to Enhance HR Capability

Twinings Uses System Dynamics Games to Enhance HR Capability “Realistic simulation is a powerful approach to building capability. The business simulation developed [by Dashboard Simulations and Lane4] gave [Twinings staff] an experience that called for them to develop...

Recent Posts

Call for Presenters: Seminar Series

Call for Presenters: Seminar Series We at the System Dynamics Society are continually seeking vibrant and knowledgeable presenters for our ongoing Seminar Series. As we unfold the calendar, there’s always a place for more insights, experiences, and expertise to enrich...

From Bergen to Global: UiB’s System Dynamics Group

From Bergen to Global: UiB’s System Dynamics Group The System Dynamics Group, an autonomous research group at the University of Bergen (UiB) was established in 1971 by professor emeritus Svein Nordbotten. Inspired by the work of Jay W. Forrester, Nordbotten...

Upcoming Events