This article reconstructs the history of monetary policy of the central bank of Colombia in the period 1990 to 2010 in which explicit inflation targeting was adopted by October of 2000.To do so we developed theoretically a modified Taylor rule with interest rate smoothing for an open and small economy and accordingly estimate a two regime Markov switching model which allows the switching dates to be endogenously determined. We find that one regime had explicit inflation targeting (from the year 2000 up to 2010) in which the inflation rate is a stationary series, given that the central bank enforced a monetary policy that satisfied the Taylor principle. This inflation stabilizing regime did show up in some quarters before the year 2000 but was not the predominant. The other regime was the more prevalent during the1990s but did not satisfy the Taylor principle allowing a unit root behavior of the inflation rate. Moreover, we find that the central bank reacted aggressively during the 1990s to output fluctuations while having an accommodating behavior for this variable during explicit inflation targeting from 2000 onwards.
