Growth and exchange rate volatility: a panel data analysis

The aim of this article is to assess the role of real effective exchange rate volatility on long-run economic growth for a set of 82 advanced and emerging economies using a panel data set ranging from 1970 to 2009. With an accurate measure for exchange rate volatility, the results for the two-step system GMM panel growth models show that a more (less) volatile RER has significant negative (positive) impact on economic growth and the results are robust for different model specifications. In addition to that, exchange rate stability seems to be more important to foster long-run economic growth than exchange rate misalignment

Are price limits on futures markets that cool? evidence from the brazilian merchantile & futures exchange

This paper investigates the impact of price limits on the Brazil- ian future markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the São Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. Our main finding is that price limits drive back prices as they approach the lower limit. There is a strong cool-off effect of the lower limit on the conditional mean, whereas the upper limit seems to entail a weak magnet effect on the conditional variance. We then build a trading strategy that accounts for the cool-off effect so as to demonstrate that the latter has not only statistical, but also economic signifi- cance. The resulting Sharpe ratio indeed is way superior to the buy-and-hold benchmarks we consider.

Are price limits on futures markets that cool?: evidence from the Brazilian Mercantile and Futures Exchange

This paper investigates the impact of price limits on the Brazilian futures markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the S˜ao Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. The results indicate that the conditional mean features a floor cool-off effect, whereas the conditional variance significantly increases as the price approaches the upper limit. We then build a trading strategy that accounts for the cool-off effect in the conditional mean so as to demonstrate that the latter has not only statistical, but also economic significance. The in-sample Sharpe ratio indeed is way superior to the buy-and-hold benchmarks we consider, whereas out-of-sample results evince similar performances.

Using irregularly spaced returns to estimate multi-factor models: application to Brazilian equity data

Multi-factor models constitute a useful tool to explain cross-sectional covariance in equities returns. We propose in this paper the use of irregularly spaced returns in the multi-factor model estimation and provide an empirical example with the 389 most liquid equities in the Brazilian Market. The market index shows itself significant to explain equity returns while the US$/Brazilian Real exchange rate and the Brazilian standard interest rate does not. This example shows the usefulness of the estimation method in further using the model to fill in missing values and to provide interval forecasts.

The political economy of exchange rate policy in Brazil: 1964-1999

This paper was developed as part of a broader research program on the political economy of exchange rate policies in Latin America and the Caribbean. We are grateful for helpful comments and suggestions from Jeff Frieden, Ernesto Stein, Jorge Streb, Marcelo Neri and seminar participants at Getulio Vargas Foundation, PUC-Rio, IDB workshop on The Political Economy of Exchange Rate Policies in Latin America and the Caribbean, and LACEA meeting in Buenos Aires. We thank René Garcia for providing us with a Fortran program for estimating the Markov Switching Model, Ilan Goldfajn for sending us updated estimates of the real exchange rate series of Goldfajn and Valdés (1996), Altamir Lopes and Ricardo Markwald for kindly furnishing data on Brazilian external accounts, and Carla Bernardes, Gabriela Domingues, Juliana Pessoa de Araújo, and, specially, Marcelo Pinheiro for excellent research assistant. Both authors thank CNPq for a research fellowship.

Testing the Markov property with ultra high frequency financial data

This paper develops a framework to test whether discrete-valued irregularly-spaced financial transactions data follow a subordinated Markov process. For that purpose, we consider a specific optional sampling in which a continuous-time Markov process is observed only when it crosses some discrete level. This framework is convenient for it accommodates not only the irregular spacing of transactions data, but also price discreteness. Further, it turns out that, under such an observation rule, the current price duration is independent of previous price durations given the current price realization. A simple nonparametric test then follows by examining whether this conditional independence property holds. Finally, we investigate whether or not bid-ask spreads follow Markov processes using transactions data from the New York Stock Exchange. The motivation lies on the fact that asymmetric information models of market microstructures predict that the Markov property does not hold for the bid-ask spread. The results are mixed in the sense that the Markov assumption is rejected for three out of the five stocks we have analyzed.

Micro evidence on brazilian price stickiness and its consequences for sectoral real exchange rate and inflation persistence

The purpose of this thesis is to investigate the price-setting behavior in Brazil and, in particular, the effects on inflation and good-level real exchange rate persistence. This thesis is composed by three Chapters. In the first Chapter, we present the main stylized facts about the behavior of retail prices in Brazil using micro data from the CPI index computed by the Fundação Getulio Vargas. Moreover we construct time series of price-setting statistics and relate them to macroeconomic variables using regression analyses. In Chapter 2, we investigated the relevance of heterogeneity in countries price stickiness on good-level real exchange rate persistence, considering a newly constructed panel data set of relative prices of 115 common products between the U.S. and Brazil. Chapter 3 is devoted to the relation between sectoral price stickiness and inflation persistence.

Análise e extração das expectativas dos agentes de mercado em torno da data do COPOM

Este trabalho explora um importante conceito desenvolvido por Breeden & Litzenberger para extrair informações contidas nas opções de juros no mercado brasileiro (Opção Sobre IDI), no âmbito da Bolsa de Valores, Mercadorias e Futuros de São Paulo (BM&FBOVESPA) dias antes e após a decisão do COPOM sobre a taxa Selic. O método consiste em determinar a distribuição de probabilidade através dos preços das opções sobre IDI, após o cálculo da superfície de volatilidade implícita, utilizando duas técnicas difundidas no mercado: Interpolação Cúbica (Spline Cubic) e Modelo de Black (1976). Serão analisados os quatro primeiros momentos da distribuição: valor esperado, variância, assimetria e curtose, assim como suas respectivas variações.

Exchange students in Brazil: some factors behind its choice - empirical evidences from a Brazilian school

O Brasil sempre foi um lugar conveniente para se visitar em termos de cultura, diversão e entretenimento. No entanto, este estudo visa o lado educacional do país, particularmente, os estudantes estrangeiros que escolhem o Brasil para programas de intercâmbio. Fins e razões por trás das escolhas dos estudantes foram identificados através de pesquisas quantitativas e qualitativas, juntamente com a revisão da literatura já existente. A pesquisa primária foi feita por meio de entrevistas com estudantes de intercâmbio já no Brasil. Os dados coletados foram analisados e são apresentados de forma estatística, juntamente com a representação gráfica. O seguinte estudo apontou que os denominados “turistas” e, assim chamados, “money seekers”, serem os principais fatores por trás da escolha de estudantes. A pesquisa também mostra que os alunos mais satisfeitos foram os que escolheram o Brasil por causa da qualidade da universidade sede, assim como para explorar as perspectivas de emprego, juntamente com iniciar uma carreira no Brasil.

Does monetary policy stabilize the exchange rate following a currency crisis?

This paper provides evidence on the relationship between rnonetary policy and the exchange rate in the aftermath of currency crises. It ana1yzes a large data set of currency crises in 80 countries in the period 1980 to 1998. The rnain question addressed is: can rnonetary policy significantly alter the probability of reversing the post-crisis undervaluation through nominal appreciation rather than higher int1ation? We find that tight rnonetary policy facilitates the reversal of currency undervaluation through nominal appreciation rather than inflation. When the econorny is also facing a banking crisis, depending on the specification, tight rnonetary policy rnay not have the same effect.

Stabilization, volatility and the equilibrium real exchange rate

In a general equilibrium model. we show that the value of the equilibrium real exchange rate is affected by its own volatility. Risk averse exporters. that make their exporting decision before observing the realization of the real exchange rate. choose to export less the more volatile is the real exchange rate. Therefore the trude balance and the variance of the real exchange rate are negatively related. An increase in the volatility of the real exchange rate for instance deteriorates the trade balance and to restore equilibrium a real exchange rate depreciation has to take place. In the empirical part of the paper we use the traditional (unconditional) standard deviation of RER changes as our measure of RER volatility.We describe the behavior of the RER volatility for Brazil,Argentina and Mexico.Monthly data for the three countries are used. and also daily data for Bruzil. Interesting patterns of volatility could be associated to the nature of the several stabilization plans adopted in those countries and to changes in the exchange rate regimes .

Using irregularly spaced returns to estimate multi-factor models : application to Brazilian equity data

Multi-factor models constitute a use fui tool to explain cross-sectional covariance in equities retums. We propose in this paper the use of irregularly spaced returns in the multi-factor model estimation and provide an empirical example with the 389 most liquid equities in the Brazilian Market. The market index shows itself significant to explain equity returns while the US$/Brazilian Real exchange rate and the Brazilian standard interest rate does not. This example shows the usefulness of the estimation method in further using the model to fill in missing values and to provide intervaI forecasts.

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

Consumption-Wealth Ratio and Expected Stock Returns: Evidence from Panel Data on G7 Countries

Using the theoretical framework of Lettau and Ludvigson (2001), we perform an empirical investigation on how widespread is the predictability of cay {a modi ed consumption-wealth ratio { once we consider a set of important countries from a global perspective. We chose to work with the set of G7 countries, which represent more than 64% of net global wealth and 46% of global GDP at market exchange rates. We evaluate the forecasting performance of cay using a panel-data approach, since applying cointegration and other time-series techniques is now standard practice in the panel-data literature. Hence, we generalize Lettau and Ludvigson's tests for a panel of important countries. We employ macroeconomic and nancial quarterly data for the group of G7 countries, forming an unbalanced panel. For most countries, data is available from the early 1990s until 2014Q1, but for the U.S. economy it is available from 1981Q1 through 2014Q1. Results of an exhaustive empirical investigation are overwhelmingly in favor of the predictive power of cay in forecasting future stock returns and excess returns.

Monetary policy, default risk and the exchange rate

In a country with high probability of default, higher interest rates may render the currency less attractive if sovereign default is costly. This paper develops that intuition in a simple model and estimates the effect of changes in interest rates on the exchange rate in Brazil using data from the dates surrounding the monetary policy committee meetings and the methodology of identification through heteroskedasticity. Indeed, we find that unexpected increases in interest rates tend to lead the Brazilian currency to depreciate. It follows that granting more independence to a central bank that focus solely on inflation is not always a free-lunch.