Non-durable consumption and real-estate prices in Brazil: panel-data analysis at the state level

Housing is an important component of wealth for a typical household in many countries. The objective of this paper is to investigate the effect of real-estate price variation on welfare, trying to close a gap between the welfare literature in Brazil and that in the U.S., the U.K., and other developed countries. Our first motivation relates to the fact that real estate is probably more important here than elsewhere as a proportion of wealth, which potentially makes the impact of a price change bigger here. Our second motivation relates to the fact that real-estate prices boomed in Brazil in the last five years. Prime real estate in Rio de Janeiro and São Paulo have tripled in value in that period, and a smaller but generalized increase has been observed throughout the country. Third, we have also seen a recent consumption boom in Brazil in the last five years. Indeed, the recent rise of some of the poor to middle-income status is well documented not only for Brazil but for other emerging countries as well. Regarding consumption and real-estate prices in Brazil, one cannot imply causality from correlation, but one can do causal inference with an appropriate structural model and proper inference, or with a proper inference in a reduced-form setup. Our last motivation is related to the complete absence of studies of this kind in Brazil, which makes ours a pioneering study. We assemble a panel-data set for the determinants of non-durable consumption growth by Brazilian states, merging the techniques and ideas in Campbell and Cocco (2007) and in Case, Quigley and Shiller (2005). With appropriate controls, and panel-data methods, we investigate whether house-price variation has a positive effect on non-durable consumption. The results show a non-negligible significant impact of the change in the price of real estate on welfare consumption), although smaller then what Campbell and Cocco have found. Our findings support the view that the channel through which house prices affect consumption is a financial one.

Theoretical and empirical essays on microeconometrics

This Master Thesis consists of one theoretical article and one empirical article on the field of Microeconometrics. The first chapter\footnote{We also thank useful suggestions by Marinho Bertanha, Gabriel Cepaluni, Brigham Frandsen, Dalia Ghanem, Ricardo Masini, Marcela Mello, Áureo de Paula, Cristine Pinto, Edson Severnini and seminar participants at São Paulo School of Economics, the California Econometrics Conference 2015 and the 37\textsuperscript{th} Brazilian Meeting of Econometrics.}, called \emph{Synthetic Control Estimator: A Generalized Inference Procedure and Confidence Sets}, contributes to the literature about inference techniques of the Synthetic Control Method. This methodology was proposed to answer questions involving counterfactuals when only one treated unit and a few control units are observed. Although this method was applied in many empirical works, the formal theory behind its inference procedure is still an open question. In order to fulfill this lacuna, we make clear the sufficient hypotheses that guarantee the adequacy of Fisher's Exact Hypothesis Testing Procedure for panel data, allowing us to test any \emph{sharp null hypothesis} and, consequently, to propose a new way to estimate Confidence Sets for the Synthetic Control Estimator by inverting a test statistic, the first confidence set when we have access only to finite sample, aggregate level data whose cross-sectional dimension may be larger than its time dimension. Moreover, we analyze the size and the power of the proposed test with a Monte Carlo experiment and find that test statistics that use the synthetic control method outperforms test statistics commonly used in the evaluation literature. We also extend our framework for the cases when we observe more than one outcome of interest (simultaneous hypothesis testing) or more than one treated unit (pooled intervention effect) and when heteroskedasticity is present. The second chapter, called \emph{Free Economic Area of Manaus: An Impact Evaluation using the Synthetic Control Method}, is an empirical article. We apply the synthetic control method for Brazilian city-level data during the 20\textsuperscript{th} Century in order to evaluate the economic impact of the Free Economic Area of Manaus (FEAM). We find that this enterprise zone had positive significant effects on Real GDP per capita and Services Total Production per capita, but it also had negative significant effects on Agriculture Total Production per capita. Our results suggest that this subsidy policy achieve its goal of promoting regional economic growth, even though it may have provoked mis-allocation of resources among economic sectors.