Banking Limits on Foreign Holdings: Disentangling the Portfolio Balance Channel

Serie

• Borradores de economía

Resumen

• In this paper we analyze the effects of financial constraints on the exchange rate through the portfolio balance channel. Our contribution is twofold: First, we construct a tractable two-period general equilibrium model in which financial constraints inhibit capital flows. Hence, departures from the uncovered interest rate parity condition are used to explain the effects of sterilized foreign exchange intervention. Second, using high frequency data during 2004-2015, we use a sharp policy discontinuity within Colombian regulatory banking limits to empirically test for the portfolio balance channel. Consistent with our model's postulations, our findings suggest that the effects on the exchange rate are short-lived, and significant only when banking constraints are binding.

autores

• Gamboa-Estrada, Fredy
• Cardozo, Pamela
• Pérez-Reyna, David
• Villamizar-Villegas, Mauricio

fecha de publicación

• 2016-03

Área temática

• C14 - Métodos semiparamétricos y no paramétricos: generalidades
• C21 - Modelos de sección cruzada; Modelos espaciales; Modelos de efecto de tratamiento; Regresiones cuantiles
• C31 - Modelos de sección cruzada; Modelos espaciales; Modelos de efecto de tratamiento; Regresiones cuantiles; Modelos de interacción social
• E58 - Bancos centrales y sus políticas
• F31 - Tipos de cambio

Enfoque geográfico

• Colombia  Country
• South America  Continent

Líneas de investigación

• Financial Constraints
• Portfolio Balance Channel
• Regression Discontinuity Design
• Sterilized Foreign Exchange Intervention
• Uncovered Interest Rate Parity

Identificador de objeto digital (DOI)

• https://doi.org/10.32468/be.934

Issue

• 934