Temporary exchange rate-based stabilization programs under asset market segmentation

This paper analyses the welfare consequences of temporary exchange rate-based stabilization programs. Differently than previous papers, however, here we assume that only a fraction of households participates in asset market transactions. With this asset market segmentation assumption, the effects of temporary programs on welfare may change drastically. Households with access to the bonds market are able to protect themselves better from the changes in the inflation rate – although at the cost of a distortion in their consumption path. As a consequence, they may decrease their inflation tax burden – which would increase for the other group of households. By the other side, when these agents that lack the access to the asset markets are credit constrained, they may welcome the program, since the government Is temporally reducing the inflation tax they have to pay. The temporary program could end up benefiting both groups, what could help to understand their popularity.

Equilibria in exchange economies with financial constraints : beyond the Cass trick

We consider an exchange economy under incomplete financiaI markets with purely financiaI securities and finitely many agents. When portfolios are not constrained, Cass [4], Duffie [7] and Florenzano-Gourdel [12] proved that arbitrage-free security prices fully characterize equilibrium security prices. This result is based on a trick initiated by Cass [4] in which one unconstrained agent behaves as if he were in complete markets. This approach is unsatisfactory since it is asymmetric and no more valid when every agent is subject to frictions. We propose a new and symmetric approach to prove that arbitrage-free security prices still fully characterize equilibrium security prices in the more realistic situation where the financiaI market is constrained by convex restrictions, provided that financiaI markets are collectively frictionless.

A pension manager’s view of exchange traded funds from São Paulo to Santiago

This paper examines the current Chilean and Brazilian pension markets, how these pension markets are structured, how they have historically invested their portfolios in ETFs and how they utilize Exchange Traded Funds (ETFs). This investigation will give an overview of the current pension landscape in each country, ETFs and ETF managers in the region, as well as distribution allowances and regulations for ETF providers within the region. Finally it will offer insights throughout that will be useful to those building a business or creating an expansion plan in Brazil or Chile.

In search of exchange rate predictability : a study about accuracy, consistency, and granger causality of forecasts generated by a Taylor Rule Model

Este estudo investiga o poder preditivo fora da amostra, um mês à frente, de um modelo baseado na regra de Taylor para previsão de taxas de câmbio. Revisamos trabalhos relevantes que concluem que modelos macroeconômicos podem explicar a taxa de câmbio de curto prazo. Também apresentamos estudos que são céticos em relação à capacidade de variáveis macroeconômicas preverem as variações cambiais. Para contribuir com o tema, este trabalho apresenta sua própria evidência através da implementação do modelo que demonstrou o melhor resultado preditivo descrito por Molodtsova e Papell (2009), o “symmetric Taylor rule model with heterogeneous coefficients, smoothing, and a constant”. Para isso, utilizamos uma amostra de 14 moedas em relação ao dólar norte-americano que permitiu a geração de previsões mensais fora da amostra de janeiro de 2000 até março de 2014. Assim como o critério adotado por Galimberti e Moura (2012), focamos em países que adotaram o regime de câmbio flutuante e metas de inflação, porém escolhemos moedas de países desenvolvidos e em desenvolvimento. Os resultados da nossa pesquisa corroboram o estudo de Rogoff e Stavrakeva (2008), ao constatar que a conclusão da previsibilidade da taxa de câmbio depende do teste estatístico adotado, sendo necessária a adoção de testes robustos e rigorosos para adequada avaliação do modelo. Após constatar não ser possível afirmar que o modelo implementado provém previsões mais precisas do que as de um passeio aleatório, avaliamos se, pelo menos, o modelo é capaz de gerar previsões “racionais”, ou “consistentes”. Para isso, usamos o arcabouço teórico e instrumental definido e implementado por Cheung e Chinn (1998) e concluímos que as previsões oriundas do modelo de regra de Taylor são “inconsistentes”. Finalmente, realizamos testes de causalidade de Granger com o intuito de verificar se os valores defasados dos retornos previstos pelo modelo estrutural explicam os valores contemporâneos observados. Apuramos que o modelo fundamental é incapaz de antecipar os retornos realizados.

Assessing interdependence among countries' fundamentals and its implications for exchange rate misalignment estimates: An empirical exercise based on GVAR

Exchange rates are important macroeconomic prices and changes in these rates a ect economic activity, prices, interest rates, and trade ows. Methodologies have been developed in empirical exchange rate misalignment studies to evaluate whether a real e ective exchange is overvalued or undervalued. There is a vast body of literature on the determinants of long-term real exchange rates and on empirical strategies to implement the equilibrium norms obtained from theoretical models. This study seeks to contribute to this literature by showing that the global vector autoregressions model (GVAR) proposed by Pesaran and co-authors can add relevant information to the literature on measuring exchange rate misalignment. Our empirical exercise suggests that the estimate exchange rate misalignment obtained from GVAR can be quite di erent to that using the traditional cointegrated time series techniques, which treat countries as detached entities. The di erences between the two approaches are more pronounced for small and developing countries. Our results also suggest a strong interdependence among eurozone countries, as expected

Does mixed frequency vector error correction model add relevant information to exchange misalignment calculus? Evidence for United States

Real exchange rate is an important macroeconomic price in the economy and a ects economic activity, interest rates, domestic prices, trade and investiments ows among other variables. Methodologies have been developed in empirical exchange rate misalignment studies to evaluate whether a real e ective exchange is overvalued or undervalued. There is a vast body of literature on the determinants of long-term real exchange rates and on empirical strategies to implement the equilibrium norms obtained from theoretical models. This study seeks to contribute to this literature by showing that it is possible to calculate the misalignment from a mixed ointegrated vector error correction framework. An empirical exercise using United States' real exchange rate data is performed. The results suggest that the model with mixed frequency data is preferred to the models with same frequency variables

The Brazilian foreign exchange market through the microstructure perspective

The objective of this study is to investigate whether the relationship between order ow and the spot exchange rate stems from the fact that the ow aggregates information on dispersed economic fundamentals in the economy. To perform this test, a database that includes all transactions of the commercial and nancial segments of the Brazilian primary foreign exchange market between January of 1999 and May of 2008 was used. We show that the order ow was partly responsible for variations in in ation expectations over the time period and that this relationship did not remain robust, drawing comparisons with other fundamentals such as GDP and Industrial Production.

Addressing important econometric issues on how to construct theoretical based exchange rate misalignment estimates

Exchange rate misalignment assessment is becoming more relevant in recent period particularly after the nancial crisis of 2008. There are di erent methodologies to address real exchange rate misalignment. The real exchange misalignment is de ned as the di erence between actual real e ective exchange rate and some equilibrium norm. Di erent norms are available in the literature. Our paper aims to contribute to the literature by showing that Behavioral Equilibrium Exchange Rate approach (BEER) adopted by Clark & MacDonald (1999), Ubide et al. (1999), Faruqee (1994), Aguirre & Calderón (2005) and Kubota (2009) among others can be improved in two following manners. The rst one consists of jointly modeling real e ective exchange rate, trade balance and net foreign asset position. The second one has to do with the possibility of explicitly testing over identifying restrictions implied by economic theory and allowing the analyst to show that these restrictions are not falsi ed by the empirical evidence. If the economic based identifying restrictions are not rejected it is also possible to decompose exchange rate misalignment in two pieces, one related to long run fundamentals of exchange rate and the other related to external account imbalances. We also discuss some necessary conditions that should be satis ed for disrcarding trade balance information without compromising exchange rate misalignment assessment. A statistical (but not a theoretical) identifying strategy for calculating exchange rate misalignment is also discussed. We illustrate the advantages of our approach by analyzing the Brazilian case. We show that the traditional approach disregard important information of external accounts equilibrium for this economy.

The Sao Paulo stock exchange and the economic stabilization

The inflationary stabilization recently observed in Brazil brings a lot of changes in all aspects of the country’s economic life. In this work we look at the impacts on the stock market, specifically at Bovespa - the São Paulo Stock Exchange. We analyze the leading variables and statistics that describe Bovespa’s behavior, such as volatility and systematic risk, comparing the four years preceding and the four years after 1994, when the Real Plan was implemented. In order to eliminate exogenous influences, we use control series made with international Stock Exchanges Indexes. The results show that after 1994 there was reduced volatility, increased trade volume, reduced efficiency of the Bovespa Index and no changes in systematic risk.

Do insiders get abnormal returns? : event studies on the trades of insiders of the firms with differentiated corporate governance of the São Paulo stock exchange

The subject insider trading is controversial. This paper presents series of event studies carried through on the trades with stocks of the firm carried by insiders with the objective to detect abnormal returns, based on the access to privileged information. The sample is composed by trades performed by insiders of the companies with stocks negotiated in the São Paulo Stock Exchange, that are classified as firms with differentiated corporate governance. Indication that trades performed by insiders resulted in abnormal returns compared to the statistically significant expected ones, as in the purchases of common shares; or for selling of preferred stocks.

Exchange rate misalignments and international trade policy: impacts on tariffs

The debate on “exchange wars and trade wars” is raising the attention of experts on international trade and economics. The main purpose of this paper is to analyze the impacts of exchange rate misalignments on one of the most traditional trade policy instruments – tariffs, as defined by the WTO – World Trade Organization. It is divided into three sections: the first one examines the effects of exchange rate variations on tariffs and its consequences for the multilateral trade system; the second explains the methodology used to determine exchange rate misalignments and also presents its results for Brazil, US and China; and the third summarizes the methodology applied to calculate the impacts of exchange rate misalignments on the level of tariff protection through an exercise of “misalignment tariffication”

EU-Mercosur trade relations: impacts of exchange rate misalignments on tariffs

The issue of “trade and exchange rate misalignments” is being discussed at the G20, IMF and WTO, following an initiative by Brazil. The main purpose of this paper is to apply the methodology developed by the authors to exam the impacts of misalignment on tariffs in order to analyse the impacts of misalignments on the trade relations between two customs unions – the EU and Mercosur, as well as to explain how tariff barriers are affected. It is divided into several sections: the first summarises the debate on exchange rates at the WTO; the second explains the methodology used to determine exchange rate misalignments; the third and fourth summarises the methodology applied to calculate the impacts of exchange rate misalignments on the level of tariff protection through an exercise of ‘misalignment tariffication’; the fifth reviews the effects of exchange rate misalignments on tariffs and its consequences for the trade negotiations between the two areas; and the last concludes and suggests a way to move the debate forward in the context of regional arrangements

Some notes about the determination of current account equilibrium real exchange rate and the relation between real exchange rate and productive specialization

The objective of these notes is to present a simple mathematical model of the determination of current account real exchange rate as defined by Bresser-Pereira (2010); i.e. the real exchange rate that guarantees the inter temporal equilibrium of balance of payments and to show the relation between Real Exchange rate and Productive Specialization at theoretical and empirical level.

Neutralizing the tendency to the overvaluation of the exchange rate or assuming a foreign constraint and asking for foreign savings

The objectives of these notes are two. The first objective is to analyze whether the strategy of growth with absorption of foreign savings leads to a trajectory of the economy that is sustainable in the long run. The second one is to evaluate the possibility of success of a policy of administered devaluation of the exchange rate in Brazil.