Academic literature on the topic 'Transaction costs economics'

ABSTRACT The New Institutional Economics, led by four Nobel laureates (Ronald Coase, Douglass North, Oliver Williamson and Elinor Ostrom), has showed that institutions and organizations are a medium for reducing transaction costs and obtaining a higher efficiency in economic performance. This paper goes into the research program of the New Institutional Economics to explain the relevance of transaction costs in political exchange and organization and show that transactions costs are even higher in political markets than in economic markets. The paper reviews the main contributions on institutions, transaction costs and political governance, and provides some lessons on political transacting and governance. The survey includes the most detailed catalogue of political transaction costs that has ever been published.

The transaction cost economics has accumulated a mass of dogmatic concepts and assertions that have acquired high stability under the influence of path dependence. These include the dogma about transaction costs as frictions, the dogma about the unproductiveness of transactions as a generator of losses, “Stigler—Coase” theorem and the logic of transaction cost minimization, and also the dogma about the priority of institutions providing low-cost transactions. The listed dogmas underlie the prevailing tradition of transactional analysis the frictional paradigm — which, in turn, is the foundation of neo-institutional theory. Therefore, the community of new institutionalists implicitly blocks attempts of a serious revision of this dogmatics. The purpose of the article is to substantiate a post-institutional (alternative to the dominant neo-institutional discourse) value-oriented perspective for the development of transactional studies based on rethinking and combining forgotten theoretical alternatives. Those are Commons’s theory of transactions, Wallis—North’s theory of transaction sector, theory of transaction benefits (T. Sandler, N. Komesar, T. Eggertsson) and Zajac—Olsen’s theory of transaction value. The article provides arguments and examples in favor of broader explanatory possibilities of value-oriented transactional analysis.

This paper compares the economic efficiency of firm-agency governance structures for pollution reduction using transaction costs economics. Two governance structures are analyzed with the transaction costs approach: command and control regulation (CCR) and negotiated agreements (NAs). We propose that the choice of governance structure depends on the strategies firms pursue given the attributes of their transactions and their market opportunities. The application of transaction cost economics analysis leads to different choices of regulatory instruments. Firms in more mature, stable industries are likely to choose command and control, while firms in new, dynamic sectors are more likely to opt for negotiated agreements. Frequency of transactions is a key factor in firm choice.

This paper considers farmland conversion for the purpose of urban development as a series of transactions and discusses the determinants of appropriate governance structures for governing farmland conversion in terms of process efficiency. Towards this end, the paper develops a theoretical framework for analysing the process of farmland conversion based on transaction cost economics. The framework covers transactions, transaction attributes, governance structures and performance with the aim of minimising transaction costs. The paper also demonstrates the usability of the framework by creating a corresponding quantitative model for a case study in China. Furthermore, it identifies factors that influence the transaction costs associated with farmland conversion in China and explains why the related governance structures are chosen.

A well-designed institutional arrangement for urban village redevelopment projects (UVRPs) must consider transaction costs, but academic papers discussing it from the perspective of transaction cost economics are lacking. This paper applies theory of transaction cost economics to analyse the types and sizes of transaction costs and who bears these costs during redevelopment when implementing UVRPs in China. This paper finds that transactions in UVRPs have high asset specificity, high uncertainty and low frequency, which easily results in high levels of transaction costs. Based on 439 UVRPs collected from seven cities, this paper finds that UVRPs implemented with top–down institutional arrangements remain prevalent in China. Based on semi-structured interviews with participating parties, this paper proves that the sizes and types of transaction costs and the distribution of these costs borne by different participating parties vary with the change of stage under dissimilar institutional arrangements. This implies that a high level of transaction costs at one stage does not necessarily mean the costs stay high at another stage. Transaction costs have essential implications for process efficiency, so policymakers need to consider transaction costs and use hybrid institutional arrangements to enhance the efficiency and sustainability of policies.

While researches along the lines of Austrian, Buchanan, and Coase’s teachings are thriving recently, they are not united. We show that conceptions of entrepreneurship and transaction costs are generally ambiguous regarding important exchange relationships because they are limited to the consideration of one-sided individual choices only. It is argued in the paper that the completion of an exchange necessarily involves at least two individuals acting in the role of the entrepreneur. In addition, transaction costs are subjective and cannot be treated as production or transportation costs. The paper distinguishes the concept of production cost from that of transaction cost, which is necessarily associated with alternative exchange or organizational opportunities, and therefore expands Buchanan’s subjectivist conception of individual cost to that of interactive transaction cost. A new definition of transaction cost and its implications to a testable theory of the determination of institutions are presented in the paper. Thus, in contrast to the general impression that entrepreneurship cannot be taught and studied, we show how it can be possible under our synthesis of entrepreneurship, transaction costs, and subjectivist economics. An example is also given to demonstrate how entrepreneurship can be taught and learned under our proposed framework.

Transaction costs, one often hears, are ‘the economic equivalent of friction in physical systems’. Like physicists, economists can sometimes neglect friction in formulating theories; but like engineers, they can never neglect friction in studying how the system actually does — let alone should — work. Interestingly, however, the present-day economics of organization also ignores friction. That is, almost single-mindedly, the literature analyzes transactions from the point of view of misaligned incentives and (especially) transaction-specific assets. The costs involved are certainly costs of running the economic system in some sense, but they are not obviously ‘frictions’. Stories about frictions in trade are not nearly as intriguing as stories about guileful trading partners and expensive assets placed at risk. But I will argue that these seemingly dull categories of cost — what Baldwin and Clark call mundane transaction costs — actually have a secret life. They are at least as important as, and quite probably far more important than, the more glamorous costs of asset specificity in explaining the partition between firm and market. These costs also have a secret life in another sense: they have a secret life cycle. I will argue that these mundane transaction costs provide much better material for helping us understand how the boundaries among firms, markets, and hybrid forms change over time.

Fibre sourcing is a critical strategic question for all sawmills and pulpmills, but the degree of supply integration though long-term contracts and forest ownership varies widely. The purpose of this research was to investigate the extent to which forest-mill integration patterns can be explained by the transaction cost economics (TCE) theory. TCE theory holds that organizations will choose transaction governance forms that minimize transaction costs. The TCE factors expected to influence that choice can be grouped into three categories; transaction frequency, market uncertainty, and asset specificity. Interviews with various industry representatives suggested that factors from all three categories are relevant to the question of forest-mill integration. A survey was conducted of mills in New Zealand and Sweden, providing data on their supply mix and various TCE factors. Of an estimated population of approximately 450 mills, 136 mills were sampled and 88 responded to the survey. Fractional logit models were developed to explore the factors that may influence the integration decision. Considerable evidence was found for the importance of TCE factors in driving fibre supply integration. The evidence was strongest for factors related to asset specificity, including forest owner concentration and the specificity of a mill's fibre requirements. Transaction frequency appears less important; while integration was found to be significantly associated with the number of mills an organisation has within the supply basin, the influence of mill capacity was found to vary. There was weak evidence for the importance of uncertainty, and perhaps only through the impact of forest owner concentration on market conduct. Integration was found significantly higher for pulpmills than sawmills, and higher in Sweden than in New Zealand. The latter result is difficult to explain by TCE theory, and suggests that non-TCE factors play a significant role. Survey responses also indicated that non-TCE factors are important. Further research is required to enlarge the sample size and better understand the role of TCE factors in forest-mill integration.

The present dissertation evaluates the internal dynamics of a specific type of common-pool resource, an information commons. Employing a novel dataset related to more than 800,000 transactions in distinct libraries during a 10-year period (2005-2015), I address distinct questions in the fields of organizational economics, law and economics, and public economics. This dissertation contains three chapters in the format of academic papers, besides the introduction and conclusion. The second chapter evaluates the behavioral responses of library users to monetary sanctions. I exploit variation in the timing of introduction of fines in a library, as well as differences among users, in terms of fine incidence. In the case of this chapter, I report two results: first, the introduction of fines reduces users\' delays, as predicted by standard models of law enforcement. Second, when evaluating the dynamic effects of such an introduction, I uncover a result in which fines lose efficacy over time since its nominal value remains the same after instauration. The third chapter measures externalities in an information commons. I estimate the magnitude of the impacts of actions of library users who were subject to a non-monetary sanction (professors and university employees) over users who were subject to a monetary sanction (students). Additionally, I estimate peer effects among users, considering the number of items they borrow from the library. When investigating external effects, I uncover a \"crowding-out\" effect: for an additional unity in professors and employees\' counts, there is an approximate one-to-one decrease in students\' counts. In the case of peer effects, I find that a rise in the borrowings of a user\'s peer group correlates with her own borrowings, an evidence of positive peer effects. Finally, the fourth chapter explores the interplay between common-pool resources and transaction costs. In particular, I try to answer the following question: what happens when transaction costs go down in a common-pool resource setting? I exploit variation in the timing of introduction of a cost-saving technology (return boxes) and its impacts on library performance measures. Contrarily to standard arguments based on transaction costs, I find a result in which the instauration of return boxes tend, on average, to raise the probability of delays and borrowings\' effective durations. The results reported in this dissertation have important implications for theories based on common-pool resources\' management, and constitute novel empirical evidence for the areas of law and economics, public economics, and organizational economics.
A presente tese avalia a dinâmica interna de um tipo específico de recurso comum, um \"information commons\". Utilizando uma nova base de dados contendo mais de 800.000 transações ocorridas em distintas bibliotecas, ao longo de um período superior a 10 anos (2005-2015), o trabalho busca responder distintas questões relacionadas às áreas de economia das organizações, direito econômico e economia do setor público. A tese contém três capítulos, em formato de artigos, além da introdução e conclusão. O segundo capítulo da tese avalia as respostas comportamentais de usuários de uma biblioteca a sanções monetárias, ao explorar variação no timing de introdução de multas, assim como diferenças entre usuários, em termos de incidência dessas multas. No caso deste capítulo, são reportados dois resultados: em primeiro lugar, a introdução da multa tende a reduzir atrasos dos usuários, conforme previsto por modelos convencionais de cumprimento da lei. Em segundo lugar, uma análise dos efeitos dinâmicos de instauração da multa sugere que ela perde eficácia ao longo do tempo, uma vez que seu valor nominal permanece o mesmo, desde a data de instauração. O terceiro capítulo da tese apresenta estimativas das magnitudes de externalidades em um recurso comum. Neste capítulo, são estimados os impactos das ações de usuários da biblioteca sujeitos a uma sanção não-monetária (professores e funcionários) sobre usuários sujeitos a uma sanção monetária (alunos). Adicionalmente, são estimados efeitos sobre pares (peereffects), considerando o número de itens emprestados por usuários da biblioteca. A análise da magnitude de efeitos externos leva à descoberta de um efeito \"crowding-out\": para cada unidade adicional emprestada por professores e funcionários, há uma redução, na escala de um por um, nos empréstimos de estudantes. No caso de estimações de efeitos sobre pares, um aumento nos empréstimos por parte do grupo ao qual um usuário pertence é correlacionado com seus próprios empréstimos, o que constitui evidência favorável à ocorrência de efeitos positivos sobre pares, no caso. Finalmente, no quarto capítulo, explora-se a interação entre recursos comuns e custos de transação. Especificamente, busca-se responder a seguinte questão: o que ocorre quando custos de transação são reduzidos em um contexto envolvendo recursos comuns? Para tanto, explora-se a variação no timing de introdução de uma tecnologia redutora de custos de transação (caixas de devolução), assim como seus impactos sobre medidas de desempenho na biblioteca. No caso deste capítulo, tem-se um resultado onde a instauração de caixas de devolução tende, em média, a aumentar a probabilidade de atrasos entre usuários da biblioteca, assim como a duração efetiva dos empréstimos, contrariamente a argumentos baseados em custos de transação. Os resultados reportados nesta tese têm importantes implicações para teorias baseadas no gerenciamento de recursos comuns, assim como correspondem a um novo conjunto de evidências empíricas relacionadas às áreas de direito econômico, economia do setor público e economia das organizações.

Thesis (Ph. D.)--Ohio State University, 2003.
Title from first page of PDF file. Document formatted into pages; contains x, 168 p.; also includes graphics. Includes abstract and vita. Advisor: Larry Libby, Dept. of Agricultural, Environmental & Development Economics. Includes bibliographical references (p. 161-168).

There is a lack of interest and empirical analysis in the existing literature on composers’ relations with their publishers and the role of Collective Management Organizations (CMOs) within the system of music copyright. The purpose of this paper is to explore and understand the influence of digitization within the music industry on the copyright enforcement in the Netherlands and on rights holders and the CMOs. Also to explore and understand how their mutual relationships are affected by digitization of the music industry. A qualitative analysis was done by reviewing scientific literature, performing a documents analysis and doing open interviews. In the existing economics of copyright literature, the main focus is set on transaction costs, efficiency and welfare topics. The findings can be used to understand and model how rights holders and CMOs cope with the digitization and contribute to the policy makers and economic actor’s discussion about future improvement of the copyright enforcement system.

The paper analyses green bonds as sources of financing renewable energy projects. Green bonds are a relatively new form of financing and thanks to increased investors’ climate awareness, the market has seen an enormous growth in the last few years. Therefore, the guidelines and standards adopted in financial markets clearly indicate what should be considered a green investment and are a key to further development of the market and achieving the goals of green financing. The goal of the theoretical approach to green bond market in the paper is to identify the key barriers that prevent many countries from taking advantage of this new but growing source of financing renewable energy. The lack of appropriate institutional arrangements for managing green bonds, issuing a minimum volume and high transaction costs are the key obstacles to the development of green bond market. The overall conclusion of the paper is that with just the right measures, many countries could make full use of green bonds to finance climate change adaptation and mitigation projects and thus increase renewable energy capacities.

In the times of economic instability in most developed countries, a decrease is experienced in the effectiveness of many large public corporations. Such corporations are facing high expenditures (transaction costs mostly) and extremely low return on invested capital. Medium-sized businesses, on the contrary, prove to be more efficient: they show an acceptable level of profitability and total cost savings. The purpose of the present study is to calculate and analyse transaction costs of medium and large corporations and identify an impact of these costs on the performance of companies. Within the the framework of a neoinstitutional approach a complex of institutional factors influencing a company’s development is being explored. The efficiency of institutional forms is determined through studying such factors as transaction costs. In line with this theory, the transaction cost level of corporations is estimated, which enables one to make their comparative analysis in economic sectors. The analysis has revealed that the relative level of transaction costs with large corporations is two times higher than that in the event of middle ones. A comparative analysis of return on sales in two groups of companies has pointed to a fact that after 2010 the margin of middle-sized companies exceeded the profitability of large companies. The relationship between the level of transaction costs and return on sales in two groups of companies is being quantified as well. We have proved that middle-sized corporations have shown a direct relationship. On the contrary, transaction costs negatively affect profitability in large corporations.

Ever since the dawn of merchanting, traders have sought ways to ease the cost of transactions. The recent growth of information and communication technology provided a wide range of solutions for international and national transactions by introducing ecommerce. As a result of this development, e-commerce recently emerged as a dominant transaction activity with a significant impact on the national economies. In recent years the potential of e-commerce has been widely discussed, with a particular focus on its effects on greater economic welfare and prosperity. Yet, despite an abundance of studies that have been done on investigating the role of e-commerce in an economy, a thorough and detailed econometric examination on its impact is still an underexplored avenue. This paper attempts to bridge this gap by investigating the impact of volume of online transactions (e-commerce) and gross capital formation on economic growth, using panel data on 31 European countries covering a 16 years’ period. The empirical panel data model is estimated by employing the Generalized Method of Moments. The main findings from the study show that e-commerce and gross capital formation have positive and significant effects on GDP per capita based on purchasing power parity, with e-commerce having a weaker development-enhancing effect in comparison to gross capital formation. In addition, this paper proposes a fruitful discussion on how to provide balance between the growth of e-commerce, the focus on improving other aspects and generating optimal economic welfare and prosperity. Our paper ends with directions for future research.

This paper is an attempt at a ‘law and literature’ analysis of Ian McDonald’s Luna trilogy. It claims that operating with a science fiction setting, the trilogy invites the reader to reflect on how and in what form a legal system may contribute to the proper functioning of a human community. The law of the moon rests on consent and antagonism at the same time. The ‘consent’ principle reflects law and economics’ conception that a person should be left to freely negotiate for their interests and rights, and that unless the transaction costs transcend the benefits, such free negotiation is the most effective way to regulate social relationships and increase common wealth. The Moon’s legal system, in this respect, is taken to the extreme, because even though courts do exist, there is no state apparatus to enforce judicial decisions. The system operates on fully individualistic and voluntary compliance to judicial decisions, which means that abiding by a pact is salvaged only by the individual interests of the participants. This reliance on individual interests – a pivotal point of law and economics – seemingly warrants cooperation, but also carries in itself the germ of antagonism. Antagonism, in my opinion, can be traced on two levels of the workings of the Moon’s so-called legal system. First, it places significant emphasis on fight: substantial truth matters little, if at all, in the moon’s legal system; what matters is pure bargaining power, tactical sense, and sometimes even bluffing, and this feature is even ideologised. One’s rights are constituted as a result of struggle. Second, however, the novel also deconstructs this notion of the law by centring on a more general level of antagonism, the armed conflicts of the various families to ground their own interests. Such conflicts demonstrate the inherent instability of the system that is not backed by a normative structure above pure partial interests.

The global oil market dwarfs other commodity markets. Its size and role in the energy and industrial value chains underscore its significant economic and geopolitical impacts. Thus, the consequences of oil price fluctuations extend far beyond the oil industry and can be viewed as a barometer of trends in the global economy. Several oil price benchmarks currently compete in the global market. The most popular ones, such as Brent or West Texas Intermediate (WTI), are backed by a sufficient supply of the underlying crude. They also meet the criteria for efficient trading, hedging and speculating — including having sufficient liquidity, developed futures markets, low transaction costs and strong institutional support.

More than 60 countries in the world have already implemented instant payment systems (IPS). However, in many cases they have been operational mainly for person-to-person transactions. This study looks at the challenges IPS may face in developing economies like Colombia as they advance further into the person-to-business transactions space. Using a survey on Colombian merchants (IV-2020), the study explores the factors associated with merchants´ propensity to adopt instant payments and those associated with the adoption of current electronic payment alternatives. It shows that IPS will need to have a broad strategy to penetrate the person-to-business space, as they will have to compete with the low marginal costs and immediacy that cash already offers and the high levels of informality in the commerce sector, especially for micro businesses. Furthermore, IPS will have to meet the high expectations merchants have about instant payments enabling access to other financial services, enhancing their competitiveness, and increasing their bottom line.

As part of the study and analysis of domestic and foreign practice of foreign trade in goods and freight forwarding, a characteristic of a conditional forwarding company is given that is able to provide a cargo owner customer with a reduction in costs in the transport component in the price of the customer’s goods. The object of the study is: the market of trade, transport operations and freight forwarding services. The objectives of the research, based on the methods of analysis and synthesis, are: research and analysis of the current state of the issue of interaction between the customer and the forwarder in the freight forwarding market.

This project is a continuation of US 2081-91. Together they develop a conceptual and empirical framework to analyze alternative forms of water reform that lead to efficient pricing of water. Our analysis demonstrates that the transition from water rights systems to water trading may lead to improved resource allocation even when overall availability of water resources declines. We introduce two systems of water trading, passive markets and active markets, and show that passive markets lead to efficient resource allocation with lower transaction costs. We demonstrate that both methods of trading are superior to block pricing. We identify the political economic situations that would lead to each type of water resource allocation. Examples from Israel and California are used to demonstrate the conceptual results.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.