Impacts Of Changing Financial And International Market Conditions On Output For Colombia

Abstract

Potential effects of financial stock values, world market demand, exchange rate fluctuations and other factors on output variations for Colombia are examined. An open macroeconomic model is developed to include the goods market, the monetary policy, and the formulation of inflation. The sample consists of quarterly data ranging from 1994.Q1 to 2007.Q2 with a total of 54 observations. A generalized least squares (GLS) method is employed in order to correct for both heteroskedasticity and autocorrelation simultaneously. The results indicate a higher stock market value, real appreciation of the peso, higher world market demand, a lower U.S. real interest rate, and a lower expected inflation rate would increase real output for Colombia. Increased deficit spending would not help raise real output, suggesting that fiscal prudence may be needed.