Natalia Salazar

The impact of liberalization and foreign investment in Colombia's financial sector

Abstract This study analyzes financial liberalization measures undertaken in 1990, of which an opening to foreign investment was a major component. After a brief description of the major changes in legislation on foreign investment, we compare performance of foreign-owned vs. domestic banks, first using a descriptive approach, then in a more systematic manner using econometric analysis. Panel data estimations reveal that financial liberalization in general had a beneficial impact on bank behavior in Colombia, by increasing competition, lowering intermediation costs and improving loan quality. Although the positive contribution of foreign entry may be overstated in recent studies by not controlling for other liberalization factors, foreign (and domestic) entry beginning in 1990 did improve bank behavior by enhancing operative efficiency and competition. However, the greater competition may have resulted in increased risk and a subsequent deterioration in loan quality, particularly among domestic banks.

Interest Spreads in Banking in Colombia, 1974-96

This paper examines the determinants of the high intermediation spread observed in the Colombian banking sector for over two decades. A reduced-form equation is estimated on the basis of a bank profit maximization model that permits a decomposition into operational costs, financial taxation, market power, and loan quality. Although the average spread did not change between the preliberalization (1974-88) and postliberalization (1991-96) periods, its composition did, with market power being significantly reduced and the responsiveness to loan quality increased. Colombias progress in reducing operational costs and financial taxation and improving loan quality will determine whether it can narrow the spread.

The Political Economy of Exchange Rate Policy in Colombia

This paper looks into the political economy forces that helped shape exchange rate policy in Colombia since the early 1960s. As witnessed by the remarkable longevity of the managed crawl, Colombian exchange rate policies since 1967 did not take the form of major regime changes. Policy shifts came about through variations in the rate of crawl, varying degrees of administrative restrictions on capital flows and, on occasions, ad-hoc measures to generate multiple exchange rates.

Interest Spreads in Banking : Costs, Financial Taxation, Market Power, and Loan Quality in the Colombian Case 1974-96

This paper examines the determinants of the high intermediation spread observed in the Colombian banking sector for over two decades. A reduced-form equation is estimated on the basis of a bank profit maximization model that permits a decomposition into operational costs, financial taxation, market power, and loan quality. Although the average spread did not change between the pre liberalization (1974-88) and post liberalization (1991-96) periods, its composition did, with market power being significantly reduced and the responsiveness to loan quality increased. Colombia`s progress in reducing operational costs and financial taxation and improving loan quality, will determine whether it can narrow the spread.

Los efectos del precio del suelo sobre el precio de la vivienda para Colombia

El presente documento analiza el comportamiento reciente de los precios de la vivienda en Colombia y busca dar luces sobre si hay un desalineamiento de estos frente a los fundamentales que los determinan. Para ello se utilizaron dos aproximaciones. La primera utiliza un modelo VAR estructural para hacer pronosticos dentro de muestra. Los resultados sugieren que los precios actualmente observados no estan desalineados si dentro de los determinantes fundamentales de los mismos se incluye el precio del suelo. Para la segunda aproximacion se construyo un modelo estructural de oferta y demanda de vivienda. Los resultados de este modelo son coherentes con los del modelo VAR y sugieren que cualquier desalineamiento del precio de la vivienda respecto de sus fundamentales se asocia con niveles historicamente altos del precio del suelo.