Date of Graduation

5-2015

Document Type

Thesis

Degree Name

Bachelor of Arts

Degree Level

Undergraduate

Department

Economics

Advisor

Civelli, Andrea

Reader

Gu, Jinping

Second Reader

Chakraborty, Avishek

Third Reader

Plavcan, Joseph M

Abstract

This thesis attempts to test the effectiveness of the IT regime as a nominal anchor (reference for monetary policy) to the Bolivian Central Bank through the use of the Taylor rule. In order to use the Taylor Rule, it will be necessary to collect data from the monetary aggregates, interest rates (preferably US interest rates since the boliviano is pegged to the US dollar), and Bolivian Central Bank international reserves. Depending upon the results of the coefficients found it would be possible to make some initial conclusions. The reason why this amount of data will be required is that this thesis will not present a standard Taylor Rule (which assumes that central banks are autonomous with respect to monetary policy). The Bolivian Central Bank does not have an autonomous monetary policy. Therefore, there will be some modifications to the variables present in the standard Taylor Rule. Moreover, the thesis will attempt to capture the relationship among the mentioned data in a time series framework through the use of a vector auto regression model (VAR). In that way, it will be feasible to study how the data (such as interest rates and international reserves) react to exogenous shocks. Through the use of the VAR framework, the effects of the IT regime in the Bolivian economy will be known more accurately.

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