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Crisis, debt and growth: lessons in fiscal and monetary policy: an analysis for the Colombian case

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  • Cortes Quiñonez, Juan Camilo

Abstract

This article examines the impact of the COVID-19 pandemic on the Colombian economy, focusing on the relationship between GDP, public spending, public debt, and interest rates. Using a Vector Autoregressive (VAR) model, the study finds that public debt has a short-term positive effect on GDP but poses risks to fiscal sustainability in the medium and long term. The research also confirms Wagner’s Law in the Colombian context: economic growth leads to increases in government spending. During the crisis, expansive fiscal and monetary policies were implemented, but they were not always well-coordinated. The relaxation of the fiscal rule and the rise in public borrowing were necessary but have created future vulnerabilities. The article concludes with recommendations focused on strengthening institutional coordination, designing flexible yet responsible fiscal rules, and promoting structural tax reforms to support more equitable and sustainable development.

Suggested Citation

  • Cortes Quiñonez, Juan Camilo, 2025. "Crisis, debt and growth: lessons in fiscal and monetary policy: an analysis for the Colombian case," MPRA Paper 128611, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:128611
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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