Inflation targeting credibility and sovereign risk: evidence from Colombia

ABSTRACT

This article relates to the literature on sovereign risk in developing countries. In particular, we present empirical evidence to address the effect of inflation targeting credibility on sovereign risk based on the Colombian experience. The findings denote that credibility is an important improvement in the institutional framework to reduce the sovereign risk premium.

KEYWORDS:

• Sovereign risk
• EMBIG
• credibility
• inflation targeting

JEL CLASSIFICATION:

• E52
• E58
• E62
• E63

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ See Table A1 (Appendix) for sources of data and description of the variables.

² Tests regarding unit root, heteroscedasticity, and autocorrelation are available upon request to the authors.