Interest rate parity in Colombia, 1981-2018
DOI:
https://doi.org/10.18041/1657-2815/libreempresa.2019v16n2.6578Keywords:
Nominal interest rate, real interest rate, exchange rate, dollar, Libor, Central bank, appreciation, depreciation, correlationAbstract
After analyzing four periods (1981-1991, 1992-2006, 2000-2006, 2007-2018) marked by changes in the management of the exchange rate, peso/dolar, by the Banco de la República and government economic policy, econometric techniques allow us to conclude that despite the increasing opening of the Colombian economy, since 1991, the liberalization of the foreign exchange market and the flow of capital, the parity of the interest rate, with a nominal and real exchange rate, began to be fulfilled to the extent that capital markets and the economy was consolidated in the process of opening. In the first period, 1981-1991, the parity did not occur and it did during 2007-2018. Johansen cointegration tests and EGARCH regresions were used in the test. A detailed study of statistics and economic policy proves that the slowness in meeting the parity rule, which took more than a decade, was due to the fact that the Colombian central bank always intervened in the market to stimulate the depreciation of the peso (exchange rate band). Nor were institutional factors that affect interest rates eliminated. In addition, in recent years there have been changes in the direction of the flow of international capital to Colombia that have altered the exchange rate more strongly than the difference in interest rates.
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