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How foreign participation in the Colombian local public debt market has influenced domestic financial conditions

Author

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  • Romero, José Vicente
  • Vargas, Hernando
  • Cardozo, Pamela
  • Murcia, Andrés

Abstract

Since 2014, participation of foreign investors in the Colombian local public bond market has increased substantially. One of the factors that has driven this result is the increased weight of Colombia in JP Morgan´s Government Bond Index. Some evidence suggests that the resulting inflows have reduced bond and loan interest rates and raised the loan supply. There is also evidence of an increased sensitivity of local public bond yields to CDS and EMBI given the inflows, 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.

Suggested Citation

  • Romero, José Vicente & Vargas, Hernando & Cardozo, Pamela & Murcia, Andrés, 2021. "How foreign participation in the Colombian local public debt market has influenced domestic financial conditions," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(4).
  • Handle: RePEc:eee:lajcba:v:2:y:2021:i:4:s2666143821000235
    DOI: 10.1016/j.latcb.2021.100043
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    1. Sergio Rebelo & Neng Wang & Jinqiang Yang, 2022. "Rare Disasters, Financial Development, and Sovereign Debt," Journal of Finance, American Finance Association, vol. 77(5), pages 2719-2764, October.

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    More about this item

    Keywords

    Monetary policy; Interest rates and transmission mechanism; Portfolio choice and investment decisions; Portfolio inflows;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G19 - Financial Economics - - General Financial Markets - - - Other

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