In 1994, an influx of drug money to Colombia coincided with a sharp increase in its export earnings from coffee and oil.
a. What was the likely impact of these factors on the value of the Colombian peso and the competitiveness of Colombia's legal exports? Explain.
b. In 1996, Colombia's president, facing charges of involvement in his country's drug cartel, sought to boost his domestic popularity by pursuing more expansionary monetary policies. Standing in the way was Colombia's independent central bank-Banco de la Republica. In response, the president and his supporters discussed the possibility of returning central bank control to the executive branch. Describe the likely economic consequences of ending Banco de la Republica's independence.