The trasition from fixed to floating exchange rate regimes: the case of Brazil

This dissertation evaluates macroeconomic management in Brazil from 1994 to the present, with particular focus on exchange rate policy. It points out that while Brazil's Real Plan succeeded in halting the hyperinflation that had reached more than 2000 percent in 1993, it also caused significant real appreciation of the exchange rate situation that was only made worse by the extremely high interest rates and ensuing bout of severe financial crises in the intemational arena. By the end of 1998, the accumulation of internai and externai imbalances led the authorities to drop foreign exchange controls and allow the currency to float. In spite of some initial scepticism, the flexible rate regime cum inflation target proved to work well. Inflation was kept under control; the current account position improved significantly, real interest rates fell and GDP growth resumed. Thus, while great challenges still lie ahead, the recent successes bestow some optimism on the well functioning of this exchange rate regime. The Brazilian case suggests that successful transition from one foreign exchange system to another, particularly during financial crisis, does not depend only on one variable be it fiscal or monetary. In reality, it depends on whole set of co-ordinated policies aimed at resuming price stability with as little exchange rate and output volatility as possible.

Estimating the term structure of volatility and fixed income derivative pricing

Estimating the parameters of the instantaneous spot interest rate process is of crucial importance for pricing fixed income derivative securities. This paper presents an estimation for the parameters of the Gaussian interest rate model for pricing fixed income derivatives based on the term structure of volatility. We estimate the term structure of volatility for US treasury rates for the period 1983 - 1995, based on a history of yield curves. We estimate both conditional and first differences term structures of volatility and subsequently estimate the implied parameters of the Gaussian model with non-linear least squares estimation. Results for bond options illustrate the effects of differing parameters in pricing.

Correcting the fixed-effect estimator for endogenous switching

In this paper, we propose a two-step estimator for panel data models in which a binary covariate is endogenous. In the first stage, a random-effects probit model is estimated, having the endogenous variable as the left-hand side variable. Correction terms are then constructed and included in the main regression.

Decentralization and education performance: a first view to the Brazilian process

This paper analyses the impact of the decentralization in educational system that is taking place in Brazil in the last decade, as a result of several laws that encourage municipalities to invest in fundamental education. The proficiency tests undertaken by the government allows to follow some public schools in two points in time. Therefore we were able to create an experimental group with the schools that were under state system in the SAEB exam and have migrated to the municipality system by the time of Prova Brasil and a control group with the schools that were under the state system between the two exams and compare the difference in their results using a fixed effect panel data analysis. The difference in difference estimator indicates that there is no significant change in the performance of the students.

Brazil: the pressure points in labor legislation

Brazil’s experience shows that the economic and political history of a country is a critical determinant of which labor laws influence wages and employment, and which are not binding. Long periods of high inflation, illiteracy of the workforce, and biases in the design and enforcement of labor legislation bred by the country’s socioeconomic history are all important in determining the reach of labor laws. Defying conventional wisdom, these factors are shown to affect labor market outcomes even in the sector of employment regarded as unregulated. Following accepted practice in Brazil, we distinguish regulated from unregulated employment by determining whether or not the contract has been ratified by the Ministry of Labor, viz., groups of workers with and without signed work booklet. We then examine the degree of adherence to labor laws in the formal and informal sectors, and finds “pressure points” – viz., evidence of the law on minimum wage, work-hours, and payment timing being binding on outcomes – in both the formal and informal sectors of the Brazilian labor market. The findings of the paper imply that in terms of the design of legislation, informality in Brazil is mainly a fiscal, and not a legal phenomenon. But the manner in which these laws have been enforced is also critical determinant of informality in Brazil: poor record-keeping has strengthened the incentives to stay informal that are already built into the design of the main social security programs, and ambiguities in the design of labor legislation combined with slanted enforcement by labor courts have led to workers effectively being accorded the same labor rights whether or not they have ratified contracts. The incentives to stay informal are naturally higher for workers who are assured of protection under labor legislation regardless of the nature of their contract, which only alters their financial relationship with the government. The paper concludes that informality in Brazil will remain high as long as labor laws remain ambiguous and enforced with a clear pro-labor bias, and social security programs lack tight benefitcontribution linkages and strong enforcement mechanisms.

Existence and uniqueness of a fixed-point for local contractions

This paper proves the existence and uniqueness of a fixed-point for local contractions without assuming the family of contraction coefficients to be uniformly bounded away from 1. More importantly it shows how this fixed-point result can apply to study existence and uniqueness of solutions to some recursive equations that arise in economic dynamics.

Volatilidade cambial e regimes de câmbio

Regimes de câmbio flutuante têm sido amplamente adotados desde 1973. De acordo com muitos estudos empíricos, esses regimes têm manifestado maiores volatilidades do que os regimes de câmbio fixo adotados após a Segunda Guerra Mundial. Contudo, desde começo dos anos 1970, muitos países têm adotado diferentes tipos de regimes de câmbio flutuante, desde completamente livres a flutuantes administrados, assim como uma ampla variedade de regimes de câmbio rígido. O objetivo deste trabalho é verificar se a volatilidade cambial está estatisticamente associada a esses diferentes regimes de câmbio. Utilizando a classificação cambial de facto de Reinhart e Rogoff (2004), nossa pesquisa aponta que regimes de câmbio com algum tipo de rigidez cambial são menos voláteis que regimes de câmbio com flutuação livre (freely floating); além disso, aponta que regimes cambiais em períodos de instabilidade monetária são ainda mais voláteis. Verificou-se ainda, que crises cambiais são significativas e responsáveis por maior volatilidade cambial, enquanto outros tipos de crises não se mostram estatisticamente significantes. Um terceiro resultado importante é o de que a abertura comercial e a abertura financeira não apresentaram significância estatística.

Three essays on local demand for public services

Local provision of public services has the positive effect of increasing the efficiency because each locality has its idiosyncrasies that determine a particular demand for public services. This dissertation addresses different aspects of the local demand for public goods and services and their relationship with political incentives. The text is divided in three essays. The first essay aims to test the existence of yardstick competition in education spending using panel data from Brazilian municipalities. The essay estimates two-regime spatial Durbin models with time and spatial fixed effects using maximum likelihood, where the regimes represent different electoral and educational accountability institutional settings. First, it is investigated whether the lame duck incumbents tend to engage in less strategic interaction as a result of the impossibility of reelection, which lowers the incentives for them to signal their type (good or bad) to the voters by mimicking their neighbors’ expenditures. Additionally, it is evaluated whether the lack of electorate support faced by the minority governments causes the incumbents to mimic the neighbors’ spending to a greater extent to increase their odds of reelection. Next, the essay estimates the effects of the institutional change introduced by the disclosure on April 2007 of the Basic Education Development Index (known as IDEB) and its goals on the strategic interaction at the municipality level. This institutional change potentially increased the incentives for incumbents to follow the national best practices in an attempt to signal their type to voters, thus reducing the importance of local information spillover. The same model is also tested using school inputs that are believed to improve students’ performance in place of education spending. The results show evidence for yardstick competition in education spending. Spatial auto-correlation is lower among the lame ducks and higher among the incumbents with minority support (a smaller vote margin). In addition, the institutional change introduced by the IDEB reduced the spatial interaction in education spending and input-setting, thus diminishing the importance of local information spillover. The second essay investigates the role played by the geographic distance between the poor and non-poor in the local demand for income redistribution. In particular, the study provides an empirical test of the geographically limited altruism model proposed in Pauly (1973), incorporating the possibility of participation costs associated with the provision of transfers (Van de Wale, 1998). First, the discussion is motivated by allowing for an “iceberg cost” of participation in the programs for the poor individuals in Pauly’s original model. Next, using data from the 2000 Brazilian Census and a panel of municipalities based on the National Household Sample Survey (PNAD) from 2001 to 2007, all the distance-related explanatory variables indicate that an increased proximity between poor and non-poor is associated with better targeting of the programs (demand for redistribution). For instance, a 1-hour increase in the time spent commuting by the poor reduces the targeting by 3.158 percentage points. This result is similar to that of Ashworth, Heyndels and Smolders (2002) but is definitely not due to the program leakages. To empirically disentangle participation costs and spatially restricted altruism effects, an additional test is conducted using unique panel data based on the 2004 and 2006 PNAD, which assess the number of benefits and the average benefit value received by beneficiaries. The estimates suggest that both cost and altruism play important roles in targeting determination in Brazil, and thus, in the determination of the demand for redistribution. Lastly, the results indicate that ‘size matters’; i.e., the budget for redistribution has a positive impact on targeting. The third essay aims to empirically test the validity of the median voter model for the Brazilian case. Information on municipalities are obtained from the Population Census and the Brazilian Supreme Electoral Court for the year 2000. First, the median voter demand for local public services is estimated. The bundles of services offered by reelection candidates are identified as the expenditures realized during incumbents’ first term in office. The assumption of perfect information of candidates concerning the median demand is relaxed and a weaker hypothesis, of rational expectation, is imposed. Thus, incumbents make mistakes about the median demand that are referred to as misperception errors. Thus, at a given point in time, incumbents can provide a bundle (given by the amount of expenditures per capita) that differs from median voter’s demand for public services by a multiplicative error term, which is included in the residuals of the demand equation. Next, it is estimated the impact of the module of this misperception error on the electoral performance of incumbents using a selection models. The result suggests that the median voter model is valid for the case of Brazilian municipalities.

The performance of open-end Brazilian fixed income mutual funds for retail clients

From a financial perspective, this dissertation analyzes the Brazilian mutual fund industry performance for an average retail client. The most representative funds for the local population, that are the fixed income open-end ones, will be selected and their performance will be measured aiming to answer if clients of this industry obtained a proper return over their investments in the period between August 2010 and August 2013. A proper return will be understood as the preservation of the purchasing power of the individual´s savings, what is achieved with a positive performance of a mutual fund after discounting taxes, administrative fees and inflation. After obtaining an answer for the previous question, this dissertation will explore a possible alternative solution: Tesouro Direto, that is an example of a financial approach that could foster the disintermediation between savings and investments through electronic channels. New electronic platforms, with a broader scope, could be utilized to increase the efficiency of funding productive investments through better remunerating Brazilian savings. Tesouro Direto may point towards a new paradigm.

Estimation of random coefficients logit demand models: an application to the Brazilian fixed income fund market

Estimation of demand and supply in differentiated products markets is a central issue in Empirical Industrial Organization and has been used to study the effects of taxes, merges, introduction of new goods, market power, among others. Logit and Random Coefficients Logit are examples of demand models used to study these effects. For the supply side it is generally supposed a Nash equilibrium in prices. This work presents a detailed discussion of these models of demand and supply as well as the procedure for estimation. Lastly, is made an application to the Brazilian fixed income fund market.

Human resource policies in public education: empirical evidences for Brazil

Esta tese traz três exercícios empíricos sobre questões de recursos humanos em escolas públicas brasileiras, aproveitando-se de uma ampla política implantada na rede estadual de São Paulo. Esta política aumenta os salários para os professores que trabalham em escolas urbanas pobres e sua regra de alocação, baseada em um corte arbitrário em um índice socioeconômico, permite a identificação de impactos causais. Em resumo, os três artigos apontam que políticas de subsídios são capazes de, de fato, manter professores nas escolas mais pobres e este efeito, por sua vez, melhora o desempenho acadêmico dos alunos. Além disso, concluímos também que esta política também reduz o absenteísmo dos professores. No entanto, como consequência do desenho dessa política, não há evidências de que o subsídio melhora o perfil dos professores alocados nessas escolas. O primeiro artigo avalia os impactos dessa política sobre a rotatividade dos professores. Concluímos que a compensação salarial reduziu a taxa de rotatividade em 7,2 pontos percentuais, o que significa uma queda de 15% sobre a média pré-tratamento. Em um modelo em forma reduzida, encontramos também evidências de que esta política pode impactar positivamente o desempenho dos alunos. O segundo artigo analisa os impactos sobre a aprendizagem dos alunos, com foco em três possíveis mecanismos: i) a rotatividade; ii) a qualidade dos professores; iii) o aumento do salário. As estimativas mostram que o único canal através do qual esta política compensatória afeta o desempenho dos alunos é a redução da rotatividade dos professores. Ao reduzir taxa de volume de negócios em um desvio-padrão, a política reduziu a proporção de alunos de baixo desempenho em cerca de meio desvio-padrão. O terceiro artigo avalia como a diferenciação salarial criada por esta política afeta absenteísmo dos professores. Os resultados mostram que, após controlar efeitos fixos de professores e escolas, pagar um salário mais elevado (em média 26% a mais) provoca uma queda de 8-22% nas faltas dos professores. Ausências que não levam a desconto de salário, como por licenças médicas, não respondem à diferenciação salarial e o impacto é maior para os professores que recebem maior incentivo.