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The Central Bank in Colombia

Author

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  • Alberto Alesina

    ()

  • Alberto Carrasquilla

    ()

  • RobertoSteiner

    ()

Abstract

Abstract: In the last decade the issue of the optimal degree of central bank independence has been at the center of attention of academics and policymakers in many countries. The direction of institutional reform has almost universally been toward making central banks more independent from political pressure. The motivation of this move is linked to an increased emphasis on price stability as the main or only goal of monetary policy after two decades of exceptionally high inflation rates. Colombia has made an effort in reforming a complex set of monetary institutions, which for over two decades delivered a persistent, moderate rate of inflation. The central bank reform -along with the elimination of many indexation practices, the liberalization of financial activity and the reduction of trade and capital account barriers- delivered substantial progress. This paper argues that a reduced set of "second generation" reforms aimed at correcting limitations that were maintained may further deepen these accomplishments. We propose to make the board of the bank smaller and to remove any members of the executive from it. An appropriate timing of appointments should also create stability in the board. Lengthening the appointment tenure of the governor and board members, together with a staggering of terms, reduces the risk that every new executive brings about an entire new board, or at least a new majority in the board of the bank. The central bank should also have a clear mandate that sets inflation control as its overarching goal. This is important because the recent involvement of the Constitutional Court in the matter of the relative precedence of inflation control over other goals raises much confusion. Finally, we conclude that the central bank is the institution better suited to supervise the financial sector. While arguments pro and against using the central bank as the financial regulator certainly exist, on balance we conclude that for a middle-income country this is the best solution.

Suggested Citation

  • Alberto Alesina & Alberto Carrasquilla & RobertoSteiner, 2000. "The Central Bank in Colombia," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 003568, FEDESARROLLO.
  • Handle: RePEc:col:000123:003568
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    File URL: http://hdl.handle.net/11445/826
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    References listed on IDEAS

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    1. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
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    4. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters,in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
    5. Kugler, Maurice & Rosenthal, Howard, 2000. "Checks and balances: an assessment of the institutional separation of political powers in Colombia," Discussion Paper Series In Economics And Econometrics 0018, Economics Division, School of Social Sciences, University of Southampton.
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    8. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, November.
    9. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 409-436.
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    Citations

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    Cited by:

    1. Mauricio Pérez Salazar, 2001. "Costos, beneficios y orden constitucional," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 3(5), pages 129-145, July-Dece.
    2. Carlos Gustavo Cano, 2008. "Regulación y supervisión: La otra cara de la política monetaria," BORRADORES DE ECONOMIA 004587, BANCO DE LA REPÚBLICA.
    3. Eslava, Marcela, 2010. "Central bankers in government appointed committees," Journal of Public Economics, Elsevier, vol. 94(5-6), pages 363-379, June.
    4. Homero Cuevas, 2001. "La autonomía extrema del Banco Central en Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 3(5), pages 220-227, July-Dece.
    5. Maria Angelica Arbelaez & Juan Jose Echavarria, 2002. "Credit, Financial Liberalization and Manufacturing Investment in Colombia," Research Department Publications 3145, Inter-American Development Bank, Research Department.

    More about this item

    Keywords

    Bancos Centrales; Política Monetaria; Independencia de la Banca Central; Instituciones Financieras; Economía Institucional; Reformas Institucionales;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • P11 - Economic Systems - - Capitalist Systems - - - Planning, Coordination, and Reform

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