SciELO - Scientific Electronic Library Online

 
vol.34 issue81Spillovers of the ECB's non-standard monetary policy into CESEE economiesBusiness Cycle and Employment Market in Colombia: 1984-2014 author indexsubject indexarticles search
Home Pagealphabetic serial listing  

Services on Demand

Journal

Article

Indicators

Related links

  • On index processCited by Google
  • Have no similar articlesSimilars in SciELO
  • On index processSimilars in Google

Share


Ensayos sobre POLÍTICA ECONÓMICA

Print version ISSN 0120-4483

Abstract

ANDRADE-PARDO, Laura; VALENCIA-ARANA, Oscar; VASQUEZ-ESCOBAR, Diego  and  VILLAMIZAR-VILLEGAS, Mauricio. Uncovering the portfolio balance channel with the use of sovereign credit ratings. Ens. polit. econ. [online]. 2016, vol.34, n.81, pp.191-205. ISSN 0120-4483.  https://doi.org/10.1016/j.espe.2016.08.003.

In this paper we study exchange rate effects due to shifts in the portfolio composition of the Colombian financial sector during 2003-2014. We first provide a theoretical understanding of the channel's transmission mechanism by modeling how the banking sector optimally allocates its portfolio composition. This allows us to characterize departures from the uncovered interest rate parity condition (UIP) in terms of foreign and domestic assets. In the empirical application, we control for a potential simultaneity bias by using a novel instrument for portfolio compositions: the use of sovereign credit ratings and outlook changes made by Moody's, Standard and Poor's and Fitch Ratings. Our findings indicate that shifts in portfolio balances affect only the long term (5-year) risk premium in up to five months before the effects subside. Additionally, we find stronger and more persistent portfolio effects in cases in which US ratings increased relative to Colombian ratings

Keywords : Portfolio balance channel; Sovereign credit rating; Uncovered interest rate parity; Monetary trilemma.

        · abstract in Spanish     · text in English     · English ( pdf )

 

Creative Commons License All the contents of this journal, except where otherwise noted, is licensed under a Creative Commons Attribution License