Improving accuracy of inflation forecasts using macroeconomic information

This thesis examines the effects of macroeconomic factors on inflation level and volatility in the Euro Area to improve the accuracy of inflation forecasts with econometric modelling. Inflation aggregates for the EU as well as inflation levels of selected countries are analysed, and the difference between these inflation estimates and forecasts are documented. The research proposes alternative models depending on the focus and the scope of inflation forecasts. I find that models with a Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) in mean process have better explanatory power for inflation variance compared to the regular GARCH models. The significant coefficients are different in EU countries in comparison to the aggregate EU-wide forecast of inflation. The presence of more pronounced GARCH components in certain countries with more stressed economies indicates that inflation volatility in these countries are likely to occur as a result of the stressed economy. In addition, other economies in the Euro Area are found to exhibit a relatively stable variance of inflation over time. Therefore, when analysing EU inflation one have to take into consideration the large differences on country level and focus on those one by one.

Three essays on the term structure of interest rates

A PhD Dissertation, presented as part of the requirements for the Degree of Doctor of Philosophy from the NOVA - School of Business and Economics

Three essays on economics of predictability of stock returns

A PhD Dissertation, presented as part of the requirements for the Degree of Doctor of Philosophy from the NOVA - School of Business and Economics

Res Publica: Citizenship and Political Representation in Portugal, 1820-1926

The term res publica (literally “thing of the people”) was coined by the Romans to translate the Greek word politeia, which, as we know, referred to a political community organised in accordance with certain principles, amongst which the notion of the “good life” (as against exclusively private interests) was paramount. This ideal also came to be known as political virtue. To achieve it, it was necessary to combine the best of each “constitutional” type and avoid their worst aspects (tyranny, oligarchy and ochlocracy). Hence, the term acquired from the Greeks a sense of being a “mixed” and “balanced” system. Anyone that was entitled to citizenship could participate in the governance of the “public thing”. This implied the institutionalization of open debate and confrontation between interested parties as a way of achieving the consensus necessary to ensure that man the political animal, who fought with words and reason, prevailed over his “natural” counterpart. These premises lie at the heart of the project which is now being presented under the title of Res Publica: Citizenship and Political Representation in Portugal, 1820-1926. The fact that it is integrated into the centenary commemorations of the establishment of the Republic in Portugal is significant, as it was the idea of revolution – with its promise of rupture and change – that inspired it. However, it has also sought to explore events that could be considered the precursor of democratization in the history of Portugal, namely the vintista, setembrista and patuleia revolutions. It is true that the republican regime was opposed to the monarchic. However, although the thesis that monarchy would inevitably lead to tyranny had held sway for centuries, it had also been long believed that the monarchic system could be as “politically virtuous” as a republic (in the strict sense of the word) provided that power was not concentrated in the hands of a single individual. Moreover, various historical experiments had shown that republics could also degenerate into Caesarism and different kinds of despotism. Thus, when absolutism began to be overturned in continental Europe in the name of the natural rights of man and the new social pact theories, initiating the difficult process of (written) constitutionalization, the monarchic principle began to be qualified as a “monarchy hedged by republican institutions”, a situation in which not even the king was exempt from isonomy. This context justifies the time frame chosen here, as it captures the various changes and continuities that run through it. Having rejected the imperative mandate and the reinstatement of the model of corporative representation (which did not mean that, in new contexts, this might not be revived, or that the second chamber established by the Constitutional Charter of 1826 might not be given another lease of life), a new power base was convened: national sovereignty, a precept that would be shared by the monarchic constitutions of 1822 and 1838, and by the republican one of 1911. This followed the French example (manifested in the monarchic constitution of 1791 and in the Spanish constitution of 1812), as not even republicans entertained a tradition of republicanism based upon popular sovereignty. This enables us to better understand the rejection of direct democracy and universal suffrage, and also the long incapacitation (concerning voting and standing for office) of the vast body of “passive” citizens, justified by “enlightened”, property- and gender-based criteria. Although the republicans had promised in the propaganda phase to alter this situation, they ultimately failed to do so. Indeed, throughout the whole period under analysis, the realisation of the potential of national sovereignty was mediated above all by the individual citizen through his choice of representatives. However, this representation was indirect and took place at national level, in the hope that action would be motivated not by particular local interests but by the common good, as dictated by reason. This was considered the only way for the law to be virtuous, a requirement that was also manifested in the separation and balance of powers. As sovereignty was postulated as single and indivisible, so would be the nation that gave it soul and the State that embodied it. Although these characteristics were common to foreign paradigms of reference, in Portugal, the constitutionalization process also sought to nationalise the idea of Empire. Indeed, this had been the overriding purpose of the 1822 Constitution, and it persisted, even after the loss of Brazil, until decolonization. Then, the dream of a single nation stretching from the Minho to Timor finally came to an end.

Buy, sell and chatter: A case analysis of a Lisbon flea market

This thesis aims explore the sociocultural as well as economic significance of the modern-day flea market, as a form of alternative marketplace system. More specifically, the main goal of the research is to determine the motivation for participation in flea markets of different participants, from vendors to consumers, using an interactionist perspective. By studying these groups in details, I seek to explore the embeddedness of social aspects in economic activity and vice versa. The basic assumption is to put aside the previous notions of the flea market as a second-order system with implied inferiority, and to explore the potential of the flea market to both challenge and complement more formal marketplace systems, by comparing and contrasting the flea market with market venues that belong to the formal sector. Feira da Ladra in Lisbon, Portugal, the oldest a hugely successful flea market in Europe, was chosen to be the research site, where its economic participants were studied in details in various exchanges, using naturalistic observations, semi-structured interviews and a sociocultural perspective.

Macroeconomic effects of monetary policy in the Eurozone

To study the macroeconomic effects of unconventional monetary policy across the different countries of the eurozone, I develop an identification scheme to disentangle conventional from non-conventional policy shocks, using futures contracts on overnight interest rates and the size of the European Central Bank balance sheet. Setting these shocks as endogenous variables in a structural vector autoregressive (SVAR) model, along with the CPI and the employment rate, estimated impulse response functions of policy to macroeconomic variables are studied. I find that unconventional policy shocks generated mixed effects in inflation but had a positive impact on employment, with the exception of Portugal, Spain, Greece and Italy where the employment response is close to zero or negative. The heterogeneity that characterizes the responses shows that the monetary policy measures taken in recent years were not sufficient to stabilize the economies of the eurozone countries under more severe economic conditions.

Trading the differences in expectations between the CDS and bond markets

This paper uses the framework developed by Vrugt (2010) to extract the recovery rate and term-structure of risk-neutral default probabilities implied in the cross-section of Portuguese sovereign bonds outstanding between March and August 2011. During this period the expectations on the recovery rate remain firmly anchored around 50 percent while the instantaneous default probability increases steadily from 6 to above 30 percent. These parameters are then used to calculate the fair-value of a 5-year and 10- year CDS contract. A credit-risk-neutral strategy is developed from the difference between the market price of a CDS of the same tenors and the fair-value calculated, yielding a sharpe ratio of 3.2

Zon-Optimus merger: Case study

The present Work Project was performed as a Case Study, analysing the merger between Zon, a leading Portuguese Pay TV operator and Optimus, the third largest mobile company in Portugal. The Case Study was developed with the purpose of understanding the value creation of the Zon-Optimus merger, being analysed the: (i) industry trends, (ii) parties’ contribution, (iii) pre-merger events, (iv) merger rationale, (v) deal structure and valuation, (vi) competition authority decision and (vii) competitive advantages and future strategy. Was also attached a Teaching Note where synergies, implied valuations, exchange ratios, shareholder agreements, swot analysis, among others, were duly analysed.

Cross sectional default probabilities in european corporate bonds

This study attempts to identify basis-trading opportunities in the European banking sector by comparing two different measures for the market’s assessment of risk: market-observed CDS spreads and model-implied Z-spreads. Using a sample of 10 banks, over a period of 3 years following the European banking crisis, it can be concluded that there were arbitrage opportunities in the sector, as evidenced by the derived negative bases.

Deflation and monetary policy: A look into Japan and the Euro Area

With more than two decades of weak economic performance since the bubble burst in the ‘90s, the Japanese deflationary scenario has become the economic fate every developed economy fears to become. As the euro area continues to experience sustained low inflation, studying the Japanese monetary policy may shed light on how to prevent persistent deflation. Using an SVAR methodology to understand the monetary transmission mechanism, we find some evidence that the euro area may possess characteristics that would eventually lead to a deflationary scenario. The extent of whether it would suffer the same Japanese fate would depend on how macroeconomic policies are timely coordinated as a response to its liquidity problem and increasing public debt across member states.

The determinants of net interest margins & net interest spreads in the Russian & Japanese Commercial Banking sectors

This study presents an empirical investigation of the determinants of net interest margins and spreads in the Russian and Japanese banking sectors with a particular focus on commercial banks. Net interest mar-gins and spreads serve as indicators of financial intermediation efficiency. This paper employed a bank-level unbalanced panel dataset prolonging from 2005 to 2014. My main empirical results show that bank characteristics explain the most of the variation in not only net interest margins but also in spreads. Capi-talization, liquidity risk, inflation, economic growth, private and government debt are important determi-nants of margin in Russia. In Japan to the contrary loan and deposit market concentration along with bank size do predominate. Common significant variables in both countries are the substitution effect, cost effi-ciency and profitability. Turning to net interest spreads, micro- and macro-specific variables are the main significant drivers in Russia. I reach the conclusion that there are no significant determinants of net interest spreads in Japan within the original selection of variables, but operating efficiency and deposits to total funding seem to prevail. In both countries, there are solid differences in the net interest margins as well as spreads once the pre- and the post-crisis periods are considered.