Current account equilibrium exchange rate in Colombia (2000-2020)

ABSTRACT Using estimations by Bresser-Pereira et al. (2021), this paper analyses the misalignment between the real exchange rate and the current account equilibrium exchange rate in Colombia in the last two decades (2000-2020). Evidence suggests that the commodity boom and bust cycle in this period is important to explain (i) the main trend of the misalignment, (ii) the deterioration of the current account in recent years and (iii) the general macroeconomic performance of the Colombian economy. A discussion about macroeconomic development and stability is also provided in the context of the Colombian financial configuration, characterized by a flexible exchange rate regime, central bank independence and inflation targeting. Ideas in this paper are consistent with key elements in the New Developmentalism Theory.