Does Independence Matter? Case Studies from Colombia

This study consists of two parts: I. ) Does Independence Matter? The Case of the Colombian Central Bank, andII. ) Does Independence Improve Performance? The Colombian Superintendency of Banks. Why has Colombia been a case of low output variability and moderate-to-high inflation? This paper argues that regardless of the institutional arrangement, monetary authorities have stabilized the business cycle, and inflation control has not been the only objective of monetary policy. The government-controlled Junta Monetaria (1963-1991) often ignored the advice of the Asesores, an anti-inflation group of technocrats who had no voting powers. Since 1991 the independent and powerful members of Junta Directiva have been engaged in inflation targeting but continue to place weight on output and employment stabilization in their objective function. Institutional reform has implied a slow reduction in inflation. For a faster decline, the current system requires either greater accountability (for not meeting the inflation targets) or less weight on output stabilization.