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A Historical Analysis of Central Bank Independence in Latin America: The Colombian Experience, 1923-2008

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Author Info
Adolfo Meisel ()
Juan D.Barón ()

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Abstract

This paper explores the relationship between central bank independence and inflation in Latin America, using as a case study the experience of Colombia (1923-2008). Since its creation, in 1923, Colombia’s central bank has undergone several reforms that have changed its objectives and degree of independence. Between 1923 and 1951, it was private and independent, with a legal commitment to price stability. In 1962 monetary responsibilities were divided between a government-dominated Monetary Board, in charge of monetary policy, and the central bank, which carried them out. In the early 1990s, the bank recovered its independence and its focus on price stability. Inflation varied substantially during these subperiods. The analysis shows that central bank independence, combined with a commitment to price stability, renders the best results in terms of price stability.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 573.

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Handle: RePEc:bdr:borrec:573

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Keywords: Central bank; independece; structural break; Colombia. Classification JEL:B15; E31; E58;

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  1. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  2. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, Oxford University Press, vol. 6(3), pages 353-98, September.
  3. Rockoff, Hugh, 1974. "The Free Banking Era: A Reexamination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(2), pages 141-67, May. [Downloadable!] (restricted)
  4. Jácome, Luis I. & Vázquez, Francisco, 2008. "Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean," European Journal of Political Economy, Elsevier, vol. 24(4), pages 788-801, December. [Downloadable!] (restricted)
  5. RESTREPO., José Manuel, 2000. "Central Bank Independence and inflation: the case of Colombia. 1924 - 1998," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  6. Otero, Jesus & Ramirez, Manuel, 2006. "Inflation before and after central bank independence: The case of Colombia," Journal of Development Economics, Elsevier, vol. 79(1), pages 168-182, February. [Downloadable!] (restricted)
  7. Rolnick, Arthur J & Weber, Warren E, 1983. "New Evidence on the Free Banking Era," American Economic Review, American Economic Association, vol. 73(5), pages 1080-91, December. [Downloadable!] (restricted)
  8. Haan, Jakob de & Kooi, Willem J., 2000. "Does central bank independence really matter?: New evidence for developing countries using a new indicator," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 643-664, April. [Downloadable!] (restricted)
  9. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc. [Downloadable!]
  10. Cukierman, Alex, 2008. "Central bank independence and monetary policymaking institutions -- Past, present and future," European Journal of Political Economy, Elsevier, vol. 24(4), pages 722-736, December. [Downloadable!] (restricted)
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  11. Berger, Helge & de Haan, Jakob & Eijffinger, Sylvester C W, 2001. " Central Bank Independence: An Update of Theory and Evidence," Journal of Economic Surveys, Blackwell Publishing, vol. 15(1), pages 3-40, February. [Downloadable!] (restricted)
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