The Colombian Sovereign Spread and its Determinants
The series Working Papers on Economics is published by the Office for Economic Studies at the Banco de la República (Central Bank of Colombia). The works published are provisional, and their authors are fully responsible for the opinions expressed in them, as well as for possible mistakes. The opinions expressed herein are those of the authors and do not necessarily reflect the views of Banco de la República or its Board of Directors.
The surge in Colombian sovereign international bond issues during the 1990s has created an increasing need for the Colombian Government and the Banco de la República to understand the dynamics and the determinants of the sovereign spread. This is the first comprehensive study of the Colombian sovereign spread and its determinants. It shows that contagion and spillovers play an important part in the determination of the spread, particularly in the short term. A study of daily spread changes between 1998 and 2003 using an OLS regression framework finds contagion, changes in the US stock market and changes in the Colombian exchange rate to significantly influence the spread. A study of the long-term determinants of the spread uses a Johansen framework of multivariate cointegration together with monthly data from 1998 to 2002, and finds exports, the exchange rate, the economic growth rate and the US T-Bill rate as significant explanatory variables of the spread. A weakness of the study, as with all single-country studies, is that the time period is too short to study variables published only with annual frequency, and some such variables have, indeed, by cross-country studies been shown to significantly influence the spread. Such variables include, for example, the debt ratio and the debt-service ratio.
La serie Borradores de Economía es una publicación de la Subgerencia de Estudios Económicos del Banco de la República. Los trabajos son de carácter provisional, las opiniones y posibles errores son responsabilidad exclusiva del autor y sus contenidos no comprometen al Banco de la República ni a su Junta Directiva.
