Effects of foreign participation in the colombian local public debt market on domestic financial conditions

Hernando Vargas-Herrera, Pamela Cardozo, José Romero and Andrés Murcia

Working papers from Red Investigadores de Economía

Abstract: Since 2014 the Colombian local public bond market experienced a substantial increase in the participation of foreign investors due to a reduction of the tax rates on foreign portfolio investment returns and the increase in the weight of Colombia in the JP Morgan GBI-GD. Some evidence is presented suggesting that the resulting inflows reduced bond and loan interest rates and raised loan supply. There is also evidence of an increased sensitivity of local public bond yields to CDS and EMBI, although the influence of external financial conditions on domestic lending rates has remained subdued. Finally, no evidence is found of a shift in the transmission of domestic monetary policy shocks to public bond and lending interest rates after the increase in foreign participation in the local bond market.

Keywords: Monetary Policy; Interest Rates and Transmission Mechanism; Portfolio Choice and Investment Decisions; Portfolio inflows (search for similar items in EconPapers)
JEL-codes: E52 E58 G11 G19 (search for similar items in EconPapers)
Pages: 36
Date: 2020-05
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (4)

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Working Paper: Effects of foreign participation in the colombian local public debt market on domestic financial conditions (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:rie:riecdt:44

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