We distinguish two types of monetary policy rules: those dependent on particular models and loss functions and those robust to them. While dependent rules are useful for monetary policy implementation, robust rules are powerful tools to characterize the behavior of the monetary authority over a time span. Robust rules are estimated directly from observable data usually under the assumption that the targets, the nominal interest rate and the inflation rate are stationary. During the transition from a moderately high level of inflation to a stable, internationally accepted level ¼, the commitment with this goal imply that the inflation rate, targets, nominal interest rates and nominal equilibrium interest rates are non-stationary. Acknowledging this later fact has important implications for the dynamic behavior of transmission mechanisms models during the transition. In this note we set up a robust monetary policy rule useful to characterize the behavior of a central bank during the transition to a stable inflation level. As in previous research, estimation may be carried out by GMM on a nonlinear equation. We illustrate these results by characterizing the behavior of the Colombian central bank during the period of full inflation targeting, that is after 2000. Our results agree with the prevailing policy in the sample span: A gentle inflation stabilization program, a stronger one on the output gap, and a high degree of interest rate smoothing. Combining these evidences with that of previous works our results suggests that the policy rule is time varying, a useful fact for policy implementation.
