CATHOLIC UNIVERSITY OF COLOMBIA

Practice

"NICE PLACE TO STAY"

BRIGITH DAYANA PINILLA

3100058

BOGOTA D.C.

2.0.1.9
 ALZA IN COLOMBIA'S ECONOMY

Inflation, as we know, is the continuous, substantial and general price increase of a

market economy; this creates an imbalance in this area affecting the world's population,

especially countries that do not have an exact number of industries of their Inflation is a

widespread and continuous increase in the overall level of prices of goods and services of an

Economy. It is usually calculated as the percentage change in the Consumer Price Index

(CPI), which measures the average prices of major consumer items. To find out which

products should be included in this representative basket, a representative sample of

households is generally surveyed. The composition of the basket used for the CPI varies

between countries and reflects the different consumption and income patterns of each.

Inflation has some negative effects on certain economic operators (workers, savers, renters,

etc.), so it is appropriate to specify and analyses their causes to deal with it.

In Colombia, the economic process has changed significantly; although government

bodies mention that the level of inflation has dropped and there are figures that show this,

there is always nonconformity in society accusing that money does not yield, as wages are

low and that always enough for the same thing; pay bills, comply with taxes, market and all

the basics, but not to acquire new things like a home of your own, a nice car or more

importantly, a university career. In the mid-1990s the inflation rate was around 23%, and by

the end of the first decade of the 80s, it was 2%.

Anyway "the coin" will always have two sides, and for the one, you can see that there is

Inflation because the prices are very high and do not reach the money to buy, or, being the

costs moderately fair, people do not buy for other reasons. Regardless of the level of Inflation

facing the country, we must be diligent with the value of the money and prioritize

responsibilities, without neglecting to avoid permanent inconvenience. The origin of money

as an instrument of monetary policy in Colombia leads us to the period of the second post-

war period when the Bank of the Republic left the passive management of monetary policy

based on the gold standard. Although the authorities seemed more concerned about the

increase and distribution of credit to certain productive sectors, the IMF emphasized the

projection of money as a means of controlling inflation and especially for the control of

external imbalance, problem on which economic policy gravitated by demonstrating that the

monetary approach to the control of external imbalance rested on a fragile theoretical basis.

There are 2 objectives to be evaluated one of them is to assess the stance of monetary policy

from a monetary approach and by controlling by shifts in demand for money. Second, it

shows that the monetary approach to the correction of external imbalance rested on a fragile

theoretical basis. As we try to achieve these objectives, we revisit the theory of the monetary

approach to inflation control and the stabilization of the external sector.

We began in 1951 when the Financial Reform gave the Bank of the Republic a

management devoid of the mechanism of the gold standard that made monetary policy

automatic or, in the language of the time, "passive". Our study period ends in 1963 when a

Monetary Board was created to consolidate the new development regime of central banking.

This was a period of successive balance-of-payments crises during which the IMF
counterweighted the development regime's effect on macroeconomic stability. The

development regime sought the extension of the Bank of the Republic's promotion credit to

the productive sector and the maintenance of an appreciating exchange rate to encourage the

importation of raw materials for industry. The combination of an appreciated exchange rate

and the generous extension of credit to certain productive sectors repeatedly led to balance-

of-payments crises.

In Colombia, the target inflation strategy is to set multiannual inflation targets with

attention to the entire macroeconomic environment; in the words of the Constitutional Court, the

functions of the Bank of the Republic "should be exercised in coordination with general economic

policy, and its actions, like those of the other organs of the State, should aim at the realization of

the values of the State Social Law and the realization of the proper purposes of State intervention

in the economy. This means that while the Bank's purpose is price stability, however, this institution

cannot be indifferent to other nationally rooted economic policy objectives, such as the pursuit of

full employment or equitable distribution of the benefits of development»

In conclusion, inflation in Colombia has presented periods of irregularity in its performance,

caused by the management of exchange rate policies, such as the impacts of the coffee boom that

the country experienced and at the same time its crises, among other causes, but it is very

remarkable how from 1990 inflation begins to undergo a very stable process of decline, facilitated

by a set of policies and decisions, made in favor of the purchasing power of the currency. This can

lead to control over expectations to avoid inflationary problems that cause headaches for all actors

in the economy. However, it is important to be clear that the price-level objective should not blind
those who raise and implement the different policies in the pursuit of the ultimate and main end of

economists; general well-being, that is to say that in the search for stable inflation we cannot forget

variables such as employment, education, and health, since in many cases it is these same that affect

the behavior of prices in an economy.

The definition of the Bank of the Republic's autonomy and its responsibility for maintaining

purchasing power as set out in the 1991 Constitution, and the Bank's prohibition on financing the

Bank's fiscal deficit has been a decisive factor in the control of inflation Government.