The Global Financial Cycle and the Effects of Fed Unconventional Monetary Policies on Foreign Portfolio Flows in Colombia

Nathali Cardozo-Alvarado, David Castañeda-Arévalo, Fredy Gamboa-Estrada and Javier Miguelez-Márquez

Borradores de Economia from Banco de la Republica de Colombia

Abstract: Assessing the effects of U.S. monetary policies on portfolio flows is important for policymakers as they could pose risks to the effectiveness of domestic monetary policy. This paper analyzes the effects of the Global Financial Cycle (GFC) and Federal Reserve (Fed) unconventional monetary policy announcements on foreign portfolio investment flows in Colombia between 2010 and 2018. Using an ordinary least squares model with corrected serial correlation, we find that Fed unconventional monetary policy announcements affected portfolio flows in Colombia, especially those related to Tapering, Operation Twist and Forward Guidance. These announcements reinforced the effects of the GFC during the period analyzed. The results by type of flow indicate that public bonds flows are more sensitive to Fed announcements than private bond and equity flows. **** RESUMEN: Evaluar los efectos de la política monetaria de EE. UU. en los flujos de portafolio es importante para los hacedores de política, ya que podría afectar la eficacia de la política monetaria local. Este artículo analiza los efectos del Ciclo Financiero Global (CFG) y los anuncios de política monetaria no convencional de la Reserva Federal (Fed) sobre los flujos de inversión extranjera de portafolio en Colombia entre 2010 y 2018. Usando un modelo de mínimos cuadrados ordinarios con correlación serial corregida, encontramos que los anuncios de política monetaria no convencional de la Fed afectaron los flujos de portafolio en Colombia, especialmente los relacionados con Tapering, Operación Twist y Forward Guidance. Estos anuncios reforzaron los efectos del CFG durante el período analizado. Los resultados por tipo de flujo indican que los flujos de deuda soberana son más sensibles a los anuncios de la Fed que los flujos de bonos y acciones privados.

Keywords: Foreign investors; Federal Reserve; global financial cycle; unconventional monetary policies; Colombian portfolio flows; Inversionistas extranjeros; Reserva Federal; ciclo financiero global; política monetaria no convencional; flujos de portafolio en Colombia (search for similar items in EconPapers)
JEL-codes: C22 E52 F3 (search for similar items in EconPapers)
Pages: 27
Date: 2023-03
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
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https://doi.org/10.32468/be.1226

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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1226

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