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Capital Flows and Financial Assets in Colombia: Recent Behavior, Consequences and Challenges for the Central Bank

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  • Hernando Vargas
  • Carlos Varela

Abstract

This paper analyzes the evolution and impact of capital flows in Colombia over the past five years. An examination of the nature and composition of the capital flows indicates that to large extent they have originated in foreign direct investment, especially in the oil and mining sectors. The repercussions of capital flows for the stability and fragility of the financial system are also discussed. Finally, some of the challenges faced by the authorities in dealing with the implications of capital flows for the conduct of monetary and exchange rate policies are presented.

Suggested Citation

  • Hernando Vargas & Carlos Varela, 2008. "Capital Flows and Financial Assets in Colombia: Recent Behavior, Consequences and Challenges for the Central Bank," Borradores de Economia 502, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:502
    DOI: 10.32468/be.502
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    1. Carolina Gómez Restrepo & Diego Jara Pinzón & Andrés Murcia Pabón, 2006. "Impacto De Las Operaciones De Los Fondos De Pensiones Obligatorias En Los Mercados Financieros Colombianos," Borradores de Economia 2806, Banco de la Republica.
    2. Alper, C. Emre & Saglam, Ismail, 1999. "The Equilibrium Real Exchange Rate: Evidence from Turkey," MPRA Paper 1924, University Library of Munich, Germany.
    3. Fernando Tenjo Galarza & Luisa F. Charry & Martha López P. & Juan M.Ramírez C., 2007. "Acelerador Financiero y Ciclos Económicos en Colombia: Un Ejercicio Exploratorio," Borradores de Economia 451, Banco de la Republica de Colombia.
    4. Rocío Betancourt & Hernando Vargas & Norberto Rodríguez., 2008. "Interest Rate Pass-Through in Colombia: a Micro-Banking Perspective," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(131), pages 29-58.
    5. Elbadawi, Ibrahim A. & Soto, Raimundo, 1994. "Capital flows and long-term equilibrium real exchange rates in Chile," Policy Research Working Paper Series 1306, The World Bank.
    6. Luis Eduardo Arango & Andrés González & Jhon Jairo León & Luis Fernando Melo, 2006. "Efectos de los cambios en la tasa de intervención del Banco de la República sobre la estructura a plazo," Borradores de Economia 2425, Banco de la Republica.
    7. Pedro Felipe Lega & Andrés Murcia & Diego Vásquez & Tatiana Venegas, 2007. "Volatilidad de la tasa de cambio nominal en Colombia," Borradores de Economia 4390, Banco de la Republica.
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    Cited by:

    1. León, Carlos & Machado, Clara & Sarmiento, Miguel, 2018. "Identifying central bank liquidity super-spreaders in interbank funds networks," Journal of Financial Stability, Elsevier, vol. 35(C), pages 75-92.
    2. Urrutia, Miguel & Hofstetter, Marc & Hamann, Franz, 2014. "Inflation Targeting in Colombia, 2002-2012," IDB Publications (Working Papers) 6394, Inter-American Development Bank.
    3. Maria Socorro Gochoco-Bautista & Juthathip Jongwanich & Jong-Wha Lee, 2012. "How Effective Are Capital Controls in Asia?," Asian Economic Papers, MIT Press, vol. 11(2), pages 122-143, Summer.
    4. Martha López, 2015. "Asset price bubbles and monetary policy in a small open economy," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 33(77), pages 93-102, June.
    5. Moreno, Ramón, 2011. "La formulación de políticas desde una perspectiva macroprudencial en economías emergentes," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 22, pages 21-40.
    6. Bank for International Settlements, 2009. "Capital flows and emerging market economies," CGFS Papers, Bank for International Settlements, number 33.
    7. Paola Morales-Acevedo, 2019. "Spillover Effects of Foreign Monetary Policy on the Foreign Indebtedness of Banks and Corporations," IHEID Working Papers 17-2019, Economics Section, The Graduate Institute of International Studies, revised 05 Nov 2019.
    8. Eduardo Sarmiento G. & Martha López, 2016. "Dutch Disease Exchange Rate Incidence over Profits of Traded and Nontraded Goods," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 41-75, January-j.
    9. Yuvana Jaichand & Renee van Eyden & Rangan Gupta, 2024. "Presidential Approval Ratings and Stock Market Performance in Latin America," Working Papers 202411, University of Pretoria, Department of Economics.
    10. León, C., 2015. "Financial stability from a network perspective," Other publications TiSEM bb2e4e44-e842-45c6-a946-4, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    Capital flows; sterilization; exchange rate; foreign investment in Colombia; financial system.;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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