Colombian Monetary and Exchange Rate Policy Over the Past Decade


This paper analyzes the performance of Colombia’s monetary and exchange rate policies over the past decade. It concludes that compared with other medium and large-sized Latin American economies using inflation targeting-cum-managed floating, Colombia has been the most effective in meeting its inflation target. The Colombian central bank has also shown an earlier and greater determination than its partners in pursuing a counter-cyclical monetary policy. But it clearly failed in the objective of avoiding exchange rate overvaluation, particularly in the aftermath of the North-Atlantic financial crisis. This has generated effects on the structure of domestic production and exports that have long-term implications.

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  1. 1.

    We prefer this term to the usual of global financial crisis since, although it had global effects, it concentrated in the United States and Western Europe.

  2. 2.

    Strictly speaking we analyze in this paper an 11-year period (2003–2013), but for simplicity we will refer to it as a decade.

  3. 3.

    Exchange controls have been in place since 1931 but had been replaced during some periods with a multiple exchange rate regime in which capital flows were channeled through a free foreign exchange market.

  4. 4.

    These, as well as later translations from the Constitution, are our own.

  5. 5.

    The original Superintendence, created in 1923, was for Banking; a later one was created for capital markets, and the two were consolidated into a Financial Superintendence in 2005.

  6. 6.

    This is the term (‘Estado Social de Derecho’) used by the Colombian Constitution to refer to the rule of law, and in fact Article 1 of the Constitution defines Colombia as a country under the ‘Social Rule of Law’.

  7. 7.

    The data on inflation versus inflation targets was estimated on the basis on central bank data for each country. GDP growth and stability was estimated using data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).

  8. 8.

    We prefer total GDP over per-capita GDP growth rates to compare performance in periods that are very distant in time because the latter are affected by demographic factors (high population expansion in 1950–1980 versus much lower population growth over the decade analyzed here).

  9. 9.

    Though strictly a regulated price, gasoline does follow international prices and can thus be seen as a ‘mixed’ variable.

  10. 10.

    This contrasts with 6 years of limited financing after the East Asian crisis and eight during the Latin American debt crisis

  11. 11.

    Colombia ran close to a current account balance during the coffee boom of the early 1950s (though it started to run a deficit at the end of the boom) and current account surpluses during the bonanzas of 1976–1979 and 1986.

  12. 12.

    This is the term that we will use here instead of ‘controls’, which is the most widely used in the literature.

  13. 13.

    This implies the obligation to channel foreign exchange through the official intermediaries or through ‘compensation accounts’ than must be registered in the Bank, the movements of which must be reported on a monthly basis.

  14. 14.

    This regulation goes back to the era of exchange controls. Since 2001, such net positions cannot exceed 20% nor can be lower than 5% of the intermediary’s net worth.

  15. 15.

    Cárdenas and Barrera (1997) presented a more mixed view.


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This paper would not have been possible without the outstanding assistance of Juan Sebastián Betancur. We appreciate the comments on the previous draft by Miguel Urrutia and Leonardo Villar.

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Ocampo, J., Malagón, J. Colombian Monetary and Exchange Rate Policy Over the Past Decade. Comp Econ Stud 57, 454–482 (2015).

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  • monetary policy
  • exchange rate policy
  • inflation target
  • colombian economic policy
  • overvaluation

JEL Classifications

  • E58