3 plots the financial account and fdi net inflows against growth in colombia. fluctuations in international lending precede or coincide with fluctuations in gdp growth in the 1980s. in the late 1990s, just as recently, fdi inflows were attracted especially by the petroleum and communication sectors. capital flows were another source of impulses for some of these cycles, again just as now. the charts also illustrate that terms of trade and international lending flows to colombia are volatile and can reverse. they have acted first as impulses to these booms and then often reversed to act as detonators to expose the vulnerability built up in the intervening years. for example in 1998 a sharp rise in international market spreads associated with the asian crisis triggered a recession here. the literature confirms that this pattern of impulse and detonation is common to developing countries. the consensus is that terms of trade shocks are an important source of shocks to growth in emerging market countries ( mendoza, 1995 ). others have found evidence that capital inflows are procyclical ( reinhart, vegh and kaminsky, 2004 ). the question relevant to then and now is : if terms of trade fluctuations and capital inflows are so volatile, why do we not save during the sunny days for the rainy days? to understand this, lavan mahadeva, at the banco de la republica, has offered me a simple scheme to differentiate roles in the drama of the business cycle. he classifies variables into impulses, amplifiers, symptoms and detonators. see chart 4. impulses start the cycle. amplifiers are those factors that generate unsustainable outcomes from what should be favorable impulses. the symptoms are data that reveal the growing vulnerability. detonators trigger crises by exposing those vulnerabilities. the point is that impulse and detonators, which as we have seen are typically international factors, are inevitable. a developing country like colombia cannot shut itself off from them. on the other hand, symptoms of ill health such as an unsustainable current account deficit, or an appreciating exchange rate, can be treated, but sometimes that treatment is worse than the disease. our focus is therefore on amplifiers where we think there is a clear responsibility for domestic policy. what could be an amplifier? intertemporal consumption theory provides a simple answer. an amplifier is any factor that prevents consumption smoothing in response to a favorable income impulse. chart 5 plots real private consumption against real private

sectors grew strongly. on the other hand, core inflation, which corresponds to the basket that excludes food and regulated products, showed a rate of 9. 78 % in january, growing 25 bps compared to the one observed in december. the fact that inflation indicators, and particularly core inflation, continue to increase in colombia contrasts with the situation of many other countries, including not only the most developed ones but also several in latin america, such as brazil, mexico, peru, and chile, where there are clear indications that the upward cycle of inflation has already peaked. the factors that explain the persistence of the upward trend in the colombian case would be summarized, in my opinion, in three elements : 1. first, despite the slowdown in demand growth, excess demand persists, which can be expressed more technically in the idea that gdp remains above the potential or that the output gap is still positive. this situation emerges from the fact that growth was atypically high in 2022, more than double the latin american average, strongly driven by demand. estimates by the bank's technical staff suggest that positive gdp gap accumulated in 2022 would persist during the first three quarters of this year. 2. a second element to explain the persistence of inflationary pressures in colombia relates to price indexation. the high inflation rates seen in 2022 have triggered indexation mechanisms, including a 16. 0 % increase in the minimum wage and sharp adjustments in the prices of some utilities, particularly electricity. these indexing mechanisms reduce the credibility of the target and probably force a tighter monetary policy than would otherwise be required for a successful antiinflationary policy. 3. the depreciation of the colombian peso is the third factor that helps explain the greater persistence of inflationary pressures in the colombian case compared to other countries. with numbers as of yesterday ( 8 february ), the depreciation of the colombian peso in the last twelve months exceeded 20. 0 %, and in the last two years, it was close to 35. 0 %. the last depreciation number for the colombian peso ( 35. 0 % ) contrasts with a nominal appreciation for the same period of brazil, mexico, costa rica, and uruguay currencies. in the case of chile, a depreciation is seen but much lower than the colombian one, at 9. 2 %. similarly, the exchange rate of the peruvian sol depreciated compared to its level two years ago, but only 5.