Essays on Economic Policy (ESPE in Spanish) - Global Risk Appetite and EMBI‑Colombia: Evidence on a Structural Break and the Fiscal Policy Role
In the journal Essays on Economic Policy (ESPE) - we disclose the results and policy proposals that arise from academic research carried out at the Banco de la República. When you read us, always keep in mind that the content of our articles, as well as the analyzes and conclusions derived from them, are the sole responsibility of their authors. The material disclosed in our ESPE magazine does not compromise or represent the opinion of Banco de la República or that of its Board of Directors.
Abstract
This paper shows that the Colombian sovereign risk (EMBI‑Colombia) is mainly determined by international investors’ risk appetite, whose response is non‑linear and depends on the government fiscal stance. It is also shown that the relationship between these variables experienced an important structural break in the second half of the 2000’s, apparently associated to the global financial crisis and the improvement in the local macro‑fundamentals. The consequences of these findings might be particularly important for this country, as they help to explain both the lower financial costs of public debt as the local market less uncertainty to external shocks, which have been observed in recent times.
