Inflation targeting, credibility and confidence crises

We study the interplay between the central bank transparency, its credibility, and the ination target level. Based on a model developed in the spirit of the global games literature, we argue that whenever a weak central bank adopts a high degree of transparency and a low target level, a bad and self conrmed type of equilibrium may arise. In this case, an over-the-target ination becomes more likely. The central bank is considered weak when favorable state of nature is required for the target to be achieved. On the other hand, if a weak central bank opts for less ambitious goals, namely lower degree of transparency and higher target level, it may avoid condence crises and ensure a unique equilibrium for the expected ination. Moreover, even after ruling out the possibility of condence crises, less ambitious goals may be desirable in order to attain higher credibility and hence a better coordination of expectations. Conversely, a low target level and a high central bank transparency are desirable whenever the economy has strong fundamentals and the target can be fullled in many states of nature.

Endogenous time-dependent rules and the costs of disinflation with imperfect credibility

This paper examines the output effects of monetary disinflation in a model with endogenous time-dependent pricing rules and imperfect credibility of the disinflation policy. We find that these features interact to generate an additional effect on top f the ones obtained with either endogenous time-dependent rules (Bonomo and Carvalho, 2003) or imperfect credibility (Ball, 1995) in isolation. This results in higher output costs of monetary disinflation.

The effect of using claim confirming product cues on the product claim credibility: is seeing believing?

The Cue Utilization Theory establishes that all products are made of multiples cues that may be seen as surrogates for the intangible attributes that make up any given product. However, the results of many years of research have yet yielded little consensus as to the impact generated by the use of such cues. This research aims to contribute to the discussion about the importance of intrinsic cues by investigating the effects that the use of product cues that confirm the product claim may have on Claim Credibility (measured through Ad Credibility), and also on consumers’ Purchase Intention and Perceived Risk toward the product. An experiment was designed to test such effects and the results suggest the effects of the use of Claim Confirming Product Cues depend on consumer’s level of awareness about such cue, and that when consumers are aware of it, Ad Credibility and Purchase Intention increase, as Perceived Risk decreases. Such results may have implications to academicians and practitioners, as well as may provide insights for future research.

Optimal-state-dependent rules, credibility, and inflationary inertia

This paper examines the output losses caused by disinflation and the role of credibility in a model where pricing mIes are optimal and individual prices are rigid. Individual nominal rigidity is modeled as resulting from menu costs. The interaction between optimal pricing mIes and credibility is essential in determining the inflationary inertia. A continued period of high inflation generates an asymmetric distribution of price deviations, with more prices that are substantially lower than their desired leveIs than prices that are substantially higher than the optimal ones. When disinflation is not credible, inflationary inertia is engendered by this asymmetry: idiosyncratic shocks trigger more upward than downward adjustments. A perfect1y credible disinflation causes an immediate change of pricing rules which, by rendering the price deviation distribution less asymmetric, practically annihilates inflationary inertia. An implication of our model is that stabilization may be sucessful even when credibility is low, provided that it is preceded by a mechanism of price alignment. We also develop an analytical framework for analyzing imperfect credibility cases.

Inglorious revolution : sovereign debt, tropical credibility, and financial underdevelopment in imperial Brazil

In 1824 the creation of institutions that constrained the monarch’s ability to unilaterally tax, spend, and debase the currency put Brazil on a path toward a revolution in public finance, roughly analogous to the financial consequences of England’s Glorious Revolution. This credible commitment to honor sovereign debt resulted in successful long-term funded borrowing at home and abroad from the 1820s through the 1880s that was unrivalled in Latin America. Some domestic bonds, denominated in the home currency and bearing exchange clauses, eventually circulated in European financial markets. The share of total debt accounted for by long-term funded issues grew, and domestic debt came to dominate foreign debt. Sovereign debt yields fell over time in London and Rio de Janeiro, and the cost of new borrowing declined on average. The market’s assessment of the probability of default tended to decrease. Imperial Brazil enjoyed favorable conditions for borrowing, and escaped the strong form of “original sin” stressed by recent work on sovereign debt. The development of vibrant private financial markets did not, however, follow from the enhanced credibility of government debt. Private finance in Imperial Brazil suffered from politicized market interventions that undermined the development of domestic capital markets. Private interest rates remained high, entry into commercial banking was heavily restricted, and limited-liability joint-stock companies were tightly controlled. The Brazilian case provides a powerful counterexample to the general proposition of North and Weingast that institutional changes that credibly commit the government to honor its obligations necessarily promote the development of private finance. The very institutions that enhanced the credibility of sovereign debt permitted the systematic repression of private financial development. In terms of its consequences for domestic capital markets, the liberal Constitution of 1824 represented an “inglorious” revolution.

Inflation targeting, credibility and coordination aspects

There are plenty of economic studies pointing out some requirements, like the inexistence of fiscal dominance, for inflation targeting framework be implemented in successful (credible) way. Essays on how public targets could be used in the absence of such requirements are unusual. In this papel' we appraise how central banks could use inflation targeting before soundness economic fundamentaIs have been achieved. First, based on concise framework, where confidence crises and imperfect information are neglected, we conclude that less ambitious (greater) target for inflation increases the credibility in the precommitment. Optimal target is higher than the one obtained using the Cukierman-Liviatan [7] model, where increasing credibility effect is not considered. Second, extending the model to make confidence crises possible, multiple equilibria solutions becomes possible too. In this case, to set greater targets for inflation may stimulate confidence crises and reduce the policymaker credibility. On the other hand, multiple (bad) equilibria may be avoided. The optimal target depends on the likelihood of each equilibrium be selected. Finally, when perturbing common knowledge uniqueness is restored even considering confidence crises, as in Morris-Shin[ 14]. The first result, i.e. less ambitious target for inflation increases credibility in precommitment, is also recovered. Adding a precise public signal, cOOl'dinated self-fulfilling actions and equilibrium multiplicity may still exist for some lack of common knowledge (as in Angeleto and Weming[l]). In this case, to set greater targets for inflation may stimulate confidence crisis again, reducing the policymaker credibility. From another aspect, multiple (bad) equilibria may be avoided. Optimal policy prescriptions depend on the likelihood of each equilibrium be selected. Results also indicate that more precise public information may open the door for bad equilibrium, contrary to the conventional wisdom that more central oank transparency is always good when considering inflation targeting framework.

Speculative attacks on debts and optimum currency area: a welfare analysis

Traditionally the issue of an optimum currency area is based on the theoretical underpinnings developed in the 1960s by McKinnon [13], Kenen [12] and mainly Mundell [14], who is concerned with the benefits of lowering transaction costs vis-à- vis adjustments to asymmetrical shocks. Recently, this theme has been reappraised with new aspects included in the analysis, such as: incomplete markets, credibility of monetary policy and seigniorage, among others. For instance, Neumeyer [15] develops a general equilibrium model with incomplete asset markets and shows that a monetary union is desirable when the welfare gains of eliminating the exchange rate volatility are greater than the cost of reducing the number of currencies to hedge against risks. In this paper, we also resort to a general equilibrium model to evaluate financial aspects of an optimum currency area. Our focus is to appraise the welfare of a country heavily dependent on foreign capital that may suffer a speculative attack on its public debt. The welfare analysis uses as reference the self-fulfilling debt crisis model of Cole and Kehoe ([6], [7] and [8]), which is employed here to represent dollarization. Under this regime, the national government has no control over its monetary policy, the total public debt is denominated in dollars and it is in the hands of international bankers. To describe a country that is a member of a currency union, we modify the original Cole-Kehoe model by including public debt denominated in common currency, only purchased by national consumers. According to this rule, the member countries regain some influence over the monetary policy decision, which is, however, dependent on majority voting. We show that for specific levels of dollar debt, to create inflation tax on common-currency debt in order to avoid an external default is more desirable than to suspend its payment, which is the only choice available for a dollarized economy when foreign creditors decide not to renew their loans.

Endogenous time-dependent rules and inflation inertia: preliminary version

When policy rules are changed, the effect of nominal rigidities should be modelled through endogenous pricing rules. We endogenize Taylor (1979) type pricing rule to examine the output effects of monetary disinflations. We derive optimal fixed-price time-dependent rules in inflationary steady states and during disinflations. We also develop a methodology to aggregate individual pricing rules which vary through disinflation. This allows us to reevaluate the output costs of monetary disinflation, including aspects as the role of the initial leveI of inflation and the importance of the degree of credibility of the policy change.

Essays on international finance, default and inflation

This thesis is composed by three papers, each one of them corresponding to one chapter. The first and the second chapters are essays on international finance appraising default and inflation as equilibrium outcomes for crisis time, in particular, for confidence crisis time that leads to speculative attack on the external public debt issued by emerging economies. With this background in mind, welfare effects from adopting common currency (chapter 1) and welfare effects from increasing the degree of economic openness (chapter 2) are analyzed in numerical exercises, based on DSGE framework. Cross-countries results obtained are then presented to be compared with empirical evidence and to help on understanding past policy decisions. Some policy prescriptions are also suggested. In the third chapter we look to the inflation targeting regime applied to emerging economies that are subject to adverse shocks, like the external debt crisis presented in the previous chapters. Based on a more theoretical approach, we appraise how pre commitment framework should be used to coordinate expectations when policymaker announcement has no full credibility and self fulfilling inflation may be possible.

Estabilidade institucional, credibilidade e poupança privada: uma análise de economia política

O objetivo desta pesquisa é mostrar que há uma relação positiva entre a estabilidade política-institucional, a credibilidade e a taxa de poupança privada. Parte da literatura recente sobre disparidades entre taxas de poupança usa um argumento de economia política para explicar como a instabilidade política-institucional pode afetar as decisões públicas que determinam a poupança pública, mas não sugere da mesma forma que tal instabilidade pode atingir negativamente a poupança privada. Analisar-se-á esta lacuna da teoria partindo-se do referencial teórico da Nova Economia Institucional (NEI), onde salienta-se, nos processos de decisão privada de acumulação de ativos, o papel do governo gartantindo (i) a estabilidade das regras de mercado e (ii) os direitos de propriedade. A pesquisa envolverá uma análise teórica microeconômica da determinação da poupança privada usando a visão da NEI. O interesse prático fundamental da pesquisa é tentar justificar, em parte, os baixos níveis de poupança na América Latina usando um argumento institucionalista e, desta forma, propor ações de governo e reformas.

Prêmio sobre o risco (risk premium) dos títulos soberanos e política fiscal discricionária vs. regras de política fiscal para um país em desenvolvimento: o caso do Brasil

O projeto de pesquisa é parte do projeto entitulado "Credibilidade de Políticas Monetárias e Fiscais para o Brasil: Risco Soberano, Instituições, Âncoras Nominais, e Acesso aos Mercados Financeiros Internacionais". Dentro do atual plano de estabilização, um estudo empírico sobre a economia brasileira fornece um exemplo vívido do impacto de vários fatores, como o grau de institucionalização das políticas monetárias e orçamentárias que tem sido utilizadas desde a implementação do Plano Real, que aumentariam a credibilidade, sustentando a política cambial e o fluxo positivo do capital internacional, na percepção do mercado do risco de suspensão de pagamento (default risk) da dívida externa de um país em desenvolvimento. O foco dentro deste projeto de pesquisa será na questão de pesquisa: "Prêmio sobre o risco (risk premium) dos títulos soberanos e política fiscal discricionária vs regras de política fiscal para um país em desenvolvimento: o caso do Brasil".

Em busca da autonomia operacional do Banco Central do Brasil como instrumento de estabilização da moeda

Os Bancos Centrais têm, como função principal, zelar pela moeda, de modo a assegurar a estabilidade financeira de seus países. A partir de tal premissa, buscaremos demonstrar que o Banco Central do Brasil necessita de autonomia operacional, a ser regulamentada em lei, a fim de cumprir com sua missão, que é de natureza essencialmente técnica. Em que pese o fato de questão de se implementar, no Brasil, um Banco Central dotado de autonomia não ser consensual, buscaremos demonstrar as vantagens deste modelo, como fator de obtenção de estabilidade monetária. No Brasil, o Banco Central (BACEN), além de arcar com uma enorme gama de atribuições, encontra-se sujeito a pressões governamentais, em face de projetos de curto prazo, não necessariamente compatíveis com a tarefa de estabilização monetária, que pode requerer uma atuação de longo prazo. A autonomia desejada para o BACEN não significa que ele venha a se tomar independente, pelo contrário, uma vez que ele terá que assumir a responsabilidade de atingir metas pré-determinadas pelo Governo, obrigando-se a prestar contas de sua atuação à sociedade, de modo transparente. Para tanto, é preciso que ele seja dotado de autonomia administrativa, orçamentária e operacional, dentro de limites estabelecidos por lei. Ao destacarmos a autonomia do BACEN, trazemos a tona um fator pertinente à questão que é inflação. Trata-se de um processo que corrói a economia, e, quando se toma crônica, 111 como vinha ocorrendo no Brasil até os anos 90, leva à instabilidade e dificulta um planejamento de longo prazo. A necessidade de se controlar a inflação, em muitos países, levou-os a adotar uma política monetária com metas inflacionárias - Inflatíon Targeting. Os países que adotaram o regime de metas inflacionárias conferiram autonomia aos seus Bancos Centrais, pois tanto mais autonomia, tanto mais credibilidade. Desta forma, países como o Chile, a Nova Zelândia, a Alemanha e os demais países que compõem a União Europeia lograram controlar a inflação. Para que o BACEN cumpra com o que lhe compete, exercendo eficientemente o seu papel, é curial, portanto, que seja dotado de autonomia orçamentária, administrativa e operacional, devendo ser regulamentado o art. 192 da Constituição Federal, através de Lei Complementar. Uma vez assegurada legalmente a autonomia de que o Banco Central do Brasil necessita, ter-se-á um meio valioso de controle da inflação, assegurando a estabilidade da moeda e permitindo que o desenvolvimento seja implementado no prazo adequado, permitindo um planejamento estratégico de longo prazo para o país.

Mérito, Estabilidade e Desempenho - Influência no Comportamento do Servidor Público

o presente trabalho tem como objetivo analisar o impacto do mérito, da estabilidade e do desempenho sobre o comportamento do servidor público brasileiro. São apresentadas a falta de um sistema eficiente de mérito, deficiências na aplicação e adequação de mecanismos de avaliação de desempenho, a estabilidade concedida aos servidores públicos, além de distorções da burocracia, como os elementos de maior relevância para a perda de motivação dos servidores públicos, a queda nos níveis de desempenho do setor e, por conseguinte, a insatisfação e falta de credibilidade por parte da sociedade como usuária dos serviços públicos. Como referencial teórico, são estudadas a Teoria da Administração, a Teoria da Motivação, a Teoria da Burocracia e Cultura Organizacional, por encontrarem-se estreitamente relacionadas ao tema objeto do estudo. Para melhor entender as origens socioculturais do problema, é realizada uma retrospectiva histórica sobre as origens do funcionalismo público em nosso país, desde o período colonial até os dias de hoje, apresentando os dispositivos relativos a mérito, desempenho e estabilidade, constantes nas Constituições brasileiras, com seus efeitos sobre o atual Regime Jurídico Único. Em seguida, são apresentados os verdadeiros conceitos e objetivos desses dispositivos, justificando a necessidade de sua existência, identificando algumas de suas distorções, principalmente no que diz respeito à estabilidade e à burocracia. Dando prosseguimento à discussão sobre o tema, são discutidas as principais propostas de reforma administrativa, enfatizando uma possível flexibilização da estabilidade, com base no desempenho. Depois de serem apresentadas sugestões e propostas para solução de alguns problemas levantados, o estudo conclui afirmando ser indispensável ter o mérito como parâmetro para ingresso e ascensão nas carreiras do setor público, além da existência e constante aperfeiçoamento de instrumentos de avaliação de desempenho legítimos, para incentivar o bom desempenho e a criatividade. Da mesma forma, é destacada a importância da estabilidade como mecanismo de proteção do setor público contra práticas de nepotismo e perseguições políticas, sendo identificados alguns pontos fortes da burocracia, que vão de encontro aos critérios de impessoalidade e hierarquia, indispensáveis em um sistema meritocrático.