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Monetary policy and the exchange rate in Colombia

In: Capital flows, commodity price movements and foreign exchange intervention

  • Hernando Vargas H

    (Bank of the Republic (Colombia))

The role of the exchange rate and the exchange rate regime in the monetary policy decision-making process in Colombia is described. The rationale for the intervention of the Central Bank in the FX market is explained and the experience in this regard is reviewed. Special attention is given to the seemingly varying effectiveness of different types of intervention and to the challenges posed by the sterilization of purchases of foreign currency. The exchange rate regime, FX regulation and FX policy determine the resilience of the economy in the face of external shocks and allow for the possibility of countercyclical monetary policy responses. A virtuous circle is created in which the volatility present in a flexible exchange rate regime improves the conditions for the functioning of a flexible exchange rate regime.

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This chapter was published in:
  • Bank for International Settlements, 2011. "The influence of external factors on monetary policy frameworks and operations," BIS Papers, Bank for International Settlements, number 57, March.
  • This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 57-09.
    Handle: RePEc:bis:bisbpc:57-09
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    1. Hernán Rincón & Jorge Toro, 2010. "Are Capital Controls and Central Bank Intervention Effective?," BORRADORES DE ECONOMIA 007622, BANCO DE LA REPÚBLICA.
    2. Hernando Vargas Herrera & Yanneth R Betancourt & Carlos Varela & Norberto Rodriguez, 2011. "Effects of reserve requirements in an inflation targeting regime: the case of Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), The global crisis and financial intermediation in emerging market economies, volume 54, pages 133-169 Bank for International Settlements.
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