FINANCIAL FRAGILITY IN COLOMBIA AND THE MONETARY POLICY DECISIONS TAKEN BY THE CENTRAL BANK 1996–2012

Abstract

 This paper evaluates what has been the role of the monetary policy decisions taken by the Central Bank during the financial instability processes that Colombia has gone through during 1996 – 2012. According to the fact analysis, the 1999 crisis questioned the role of the central bank, which defended a counter-cyclic posture that was not strong enough to lead the economic recovery. The 2008 crisis found a stronger stand­ing Central Bank, even though it answered late to the emerging processes regarding financial fragility. With the use of econometric studies it was proven that a contractive monetary policy can accelerate a financial crisis when the measure is implemented in moments when the financial stress is too high.