Effects of fiscal credibility on investment expectations in Colombia: Empirical evidence for the 2005-2019 period
No. 92 (2022-10-01)Author(s)
-
Cristina Isabel Ramos Barroso
-
Juan Camilo Galvis Ciro
Abstract
Fiscal credibility plays an important role in creating favorable scenarios for investment and economic growth. Adequate management of public finances can be decisive in the perception of country risk and the attraction of foreign capital. The aim of this paper is to build a fiscal credibility index and evaluate its impact on investment expectations in Colombia for the 2005-2019 period. Using monthly data on fiscal credibility, investment expectations, and a set of control variables, estimates were made using OLS and GMM methods. Robustness tests were performed using impulse-response functions. The findings reveal that fiscal credibility directly influences the investment decisions of private agents, and that local interest rates and international volatility negatively affect investors’ expectations.
References
Acosta, P., & Loza, A. (2005). Short and long run determinants of private investment in Argentina. Journal of Applied Economics, 8(2), 389-406. https://doi.org/10.1080/15140326.2005.12040634
Allsopp, C., & Vines, D. (2005). The macroeconomic role of fiscal policy. Oxford Review of Economic Policy, 21(4), 485-508.
Bomfim, A., & Rudebusch, G. (2000). Opportunistic and deliberate disinflation under imperfect credibility. Journal of Money, Credit and Banking, 32(4), 707-721.
Campo, R. (2004). Determinantes de la inversión en Nicaragua. Un estudio empírico [Tesis de maestría, Pontificia Universidad Católica de Chile]. http://economia.uc.cl/docs/tesis_rcampo.pdf
Clark, C. (2011). What is ‘credible’ fiscal policy? The Canadian experience, 1983-2010. The view of a former practitioner. New directions for intelligent government in Canada. Papers in honour of Ian Stewart. En F.Gorbet & A.Sharpe (Eds.), Centre for the study of living standards (pp. 101-126). CSLS.
Cukierman, A., & Meltzer, A. A. (1986). Theory of ambiguity, credibility and inflation under discretion and asymmetric information. Econometrica, 54(5), 1099-1128.
De Mendonça, H. F., & Tostes, F. S. (2015). The effect of monetary and fiscal credibility on exchange rate pass-through in an emerging economy. Open Economies Review, 26(4), 787-816.
De Mendonça, H., & da Silva, R. (2016). Observing the influence of fiscal credibility on inflation. Evidence from an emerging economy. Economics Bulletin, 36(4), 2333-2349.
De Mendonça, H., & Machado, M. (2013). Public debt management and credibility. Evidence from an emerging economy. Economic Modelling, 30, 10-21.
De Oliveira, A., Montes, G., & Nicolay, R. (2018). Fiscal credibility and central bank credibility: How do we build them?ANPEC.
Debrun, X., & Kinda, T. (2017). Strengthening post-crisis fiscal credibility: Fiscal councils on the rise – a new dataset. Fiscal Studies, 38(4), 667-700.
Denton, F. (1971). Adjustment of monthly or quarterly series to annual totals. An approach based on quadratic minimization.Journal of the American Statistical Association, 66(333), 99-102.
Fedesarrollo. (2019a). Encuesta de opinión empresarial. Noviembre de 2019. https://bit.ly/3BzCPWq
Fedesarrollo. (2019b). Encuesta de opinión empresarial. Diciembre de 2019. https://bit.ly/3xlPauC
Fouejieu, A., & Roger, S. (2013). Inflation targeting and country risk. An empirical investigation (IMF Working Paper, No. 13/21). https://www.imf.org/external/pubs/ft/wp/2013/wp1321.pdf
Greene, W. H. (1993). The econometric approach to efficiency analysis. En H. O.Fried & S. S.Schmidt (eds.), The measurement of productive efficiency. Techniques and applications (pp. 68-119). Oxford University Press.
Gültekin-Karaka¸s D., Hisarciklilar, M., & Öztürk, H. (2011). Sovereign risk ratings. Biased toward developed countries? Emerging Markets Finance and Trade, 47(2), 69-87.
Guncvadi, O. (2008). International liquidity, financial constraints and private investment in an emerging market economy [MPRA Paper No. 9620]. Munich Personal RePEc Archive. https://bit.ly/3S0mwHr
Gutiérrez, F. S., & Moreno-Brid, J. C. (2018). Los determinantes de la inversión privada en México (1988-2015). Economía Informa, 413, 4-15.
Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica, 50, 1029-1054. https://doi.org/10.2307/1912775
Hauner, D., Jonas, J., & Kumar, M. (2007). Policy credibility and sovereign credit: The case of the new EU member states [IMF Working Paper No. 07/01]. https://ssrn.com/abstract=956766
Hurtado, J., & Melo, L. F. (2010). Una metodología multivariada para la desagregación temporal. Borradores de Economía, 586, 1-37.
Kennedy, M., & Palerm, A. (2014). Emerging market bond spreads. The role of global and domestic factors from 2002 to 2011.Journal of International Money and Finance, 43(1), 70-87.
Kunkoro, H. (2016). The credibility of fiscal rules policy and business cycle volatility. Scientific Annals of Economics and Business, 63(2), 209-224.
Kydland, F., & Prescott, E. (1977). Rules rather than discretion: The inconsistency of optimal plans. The Journal of Political Economy, 85(3), 473-492.
Lanzilotta, B. (2015). Expectativas empresariales: consecuencias en el crecimiento en Uruguay. Cuadernos de Economía, 34(65), 423-442. https://doi.org/10.15446/cuad.econ.v34n65.45932
Lesotlho, P. (2006). An investigation of the determinants of private investment. The case of Botswana [Tesis de maestría, University of The Western Cape]. https://core.ac.uk/download/pdf/58913102.pdf
Li, N., & Mehkariz, M. S. (2009). Expectation driven firm dynamics and business cycles. Ohio. The Ohio State University. https://bit.ly/3qBbHA4
López, J., & López, R. (2019). Regla fiscal para el Gobierno central de Colombia. Antecedentes, desempeño y perspectivas (Banco Interamericano de Desarrollo, Documento para discusión No. IBD-DP 720). https://bit.ly/3DpCg2C
Martínez, A. (2016). Impacto de un nuevo panorama de los precios del petróleo en las diferentes regiones de Colombia(Cuadernos PNUD). Programa de las Naciones Unidas para el Desarrollo.
Melliot, C., & Paget-Blanc, E. (2006). Which factors determine sovereign credit ratings?The European Journal of Finance, 12(4), 361-377.
Melo, F. & Misas, M. (1992). Desagregación de series temporales: metodología y aplicación al caso del PIB en Colombia. Ensayos sobre Política Económica, (22), 151-170.
Moguillansky, G. (2002). Inversión y volatilidad financiera en América Latina. Revista de la Cepal, 77, 47-65.
Montes, G., & Açar, T. (2018). Fiscal credibility and disagreement in expectations about inflation: Evidence for Brazil. Economics Bulletin, 38(2), 826-843.
Montes, G., & Nogueira, F. D. (2022). Effects of economic policy uncertainty and political uncertainty on business confidence and investment. Journal of Economic Studies, 49(4), 577-602. https://doi.org/10.1108/JES-12-2020-0582
Montes, G., & Souza, I. (2020). Sovereign default risk, debt uncertainty and fiscal credibility. The case of Brazil. The North American Journal of Economics and Finance, 51, 1-26. https://doi.org/10.1016/j.najef.2018.09.009
Montes, G., & Costa, J. (2022). Effects of fiscal credibility on sovereign risk. Evidence using comprehensive credit rating measures. International Journal of Emerging Markets, 17(3), 858-888. https://doi.org/10.1108/IJOEM-06-2020-0697
Mushtaq, S., & Siddiqui, D. A. (2016). Effect of interest rate on economic performance. Evidence from Islamic and non-Islamic economies. Financial Innovation, 2(1), 9. https://doi.org/10.1186/s40854-016-0028-7
Naert, F. (2012). Credibility of fiscal policies and independent fiscal bodies. Review of Business and Economic Literature, Intersentia, 56(3), 288-309.
Nguyen, C. T., & Trinh, L. T. (2018). The impacts of public investment on private investment and economic growth. Evidence from Vietnam. Journal of Asian Business and Economic Studies, 25(1), 15-32. https://doi.org/10.1108/JABES-04-2018-0003
Parra, J. C. (2008). Sensibilidad del IPC a la tasa de cambio en Colombia: una medición de largo plazo (Borradores de Economía, no. 542).
Perilla, J. R. (2010). El impacto de los precios del petróleo sobre el crecimiento económico en Colombia(Archivos de Economía, no. 008849). Departamento Nacional de Planeación.
Quintero-Otero, J. D. (2015). Impactos de la política monetaria y canales de transmisión en países de América Latina con esquema de inflación objetivo. Ensayos sobre Política Económica, 33(76), 61-75. https://doi.org/10.1016/j.espe.2015.02.001
Sargent, T. J., & Wallace, N. (1981). Some unpleasant monetarist arithmetic. Federal Reserve Bank of Minneapolis Quarterly Review, 5 (3), 1.
Shirakawa. (2012). The importance of fiscal sustainability. Preconditions for stability in the financial system and in prices. Remarks at the Banque de France Financial Stability Review Launch Event in Washington D.C.
Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1-48.
Wooldridge, J. M. (2001). Applications of generalized method of moments estimation. The Journal of Economic Perspectives, 15(4), 87-100. https://doi.org/10.1257/jep.15.4.87
Wyplosz, C. (2005). Fiscal policy: Institutions versus rules. National Institute Economic Review, 191, 64-78.
License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.