Evaluation of contagion or interdependence in the financial crises of Asia and Latin America, considering the macroeconomic fundamentals

This article investigates the existence of contagion between countries on the basis of an analysis of returns for stock indices over the period 1994-2003. The economic methodology used is that of multivariate GARCH family volatility models, particularly the DCC models in the form proposed by Engle and Sheppard (2001). The returns were duly corrected for a series of country-specific fundamentals. The relevance of this procedure is highlighted in the literature by the work of Pesaran and Pick (2003). The results obtained in this paper provide evidence favourable to the hypothesis of regional contagion in both Latin America and Asia. As a rule, contagion spread from the Asian crisis to Latin America but not in the opposite direction

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

Voter turnout, inflation, and the politics of macroeconomic policy: an empirical essay

This thesis tests some hypotheses regarding the impact of voter turnout on inflation on the assumption that macroeconomic policies depend on voters’ and politicians’ preferences. The work’s empirical basis includes data from 111 nations from the developing world, covering the period from 1978 to 2000. Its main finding indicates that increases in voter turnout co-vary with higher inflation rates, all else held constant.

The welfare cost of macroeconomic uncertainty in the post-war period

Lucas (1987) has shown the surprising result that the welfare cost of business cycles is quite small. Using standard assumptions on preferences and a fully-áedged econometric model we computed the welfare costs of macroeconomic uncertainty for the post-WWII era using the multivariate Beveridge-Nelson decomposition for trends and cycles, which considers not only business-cycle uncertainty but also uncertainty from the stochastic trend in consumption. The post-WWII period is relatively quiet, with the welfare costs of uncertainty being about 0:9% of per-capita consumption. Although changing the decomposition method changed substantially initial results, the welfare cost of uncertainty is qualitatively small in the post-WWII era - about $175.00 a year per-capita in the U.S. We also computed the marginal welfare cost of macroeconomic uncertainty using this same technique. It is about twice as large as the welfare cost ñ$350.00 a year per-capita.

An overview of some historical brazilian macroeconomic series and some open questions

This paper presents an overview of the Brazilian macroeconomy by analyzing the evolution of some specific time series. The presentation is made through a sequence of graphs. Several remarkable historical points and open questions come up in the data. These include, among others, the drop in output growth as of 1980, the clear shift from investments to government current expenditures which started in the beginning of the 80s, the notable way how money, prices and exchange rate correlate in an environment of permanently high inflation, the historical coexistence of high rates of growth and high rates of inflation, as well as the drastic increase of the velocity of circulation of money between the 70s and the mid-90s. It is also shown that, although net external liabilities have increased substantially in current dollars after the Real Plan, its ratio with respect to exports in 2004 is practically the same as the one existing in 1986; and that residents in Brazil, in average, owed two more months of their final income (GNP) to abroad between 1995-2004 than they did between 1990 and 1994. Variance decompositions show that money has been important to explain prices, but not output (GDP).

Infrastructure privatization in a neoclassical economy : macroeconomic impact and welfare computation

In this paper a competitive general equilibrium model is used to investigate the welfare and long run allocation impacts of privatization. There are two types of capital in this model economy, one private and the other initially public ("infrastructure"), and a positive externality due to the latter is assumed. A benevolent government can improve upon decentralized allocation internalizing the externality, but it introduces distortions in the economy through the finance of its investments. It is shown that even making the best case for public action - maximization of individuals' welfare, no• operation inefficiency and free supply to society of infrastructure services - privatization is welfare improving for a large set of economies. Hence, arguments against privatization based solely on under-investment are incorrect, as this maybe the optimal action when the financing of public investment are considered. When operation inefficiency is introduced in the public sector, gains from privatization are much higher and positive for most reasonable combinations of parameters .

Common cycles in macroeconomic aggregates (revised version)

Although there has been substantial research on long-run co-movement (common trends) in the empirical macroeconomics literature. little or no work has been done on short run co-movement (common cycles). Investigating common cycles is important on two grounds: first. their existence is an implication of most dynamic macroeconomic models. Second. they impose important restrictions on dynamic systems. Which can be used for efficient estimation and forecasting. In this paper. using a methodology that takes into account short- and long-run co-movement restrictions. we investigate their existence in a multivariate data set containing U.S. per-capita output. consumption. and investment. As predicted by theory. the data have common trends and common cycles. Based on the results of a post-sample forecasting comparison between restricted and unrestricted systems. we show that a non-trivial loss of efficiency results when common cycles are ignored. If permanent shocks are associated with changes in productivity. the latter fails to be an important source of variation for output and investment contradicting simple aggregate dynamic models. Nevertheless. these shocks play a very important role in explaining the variation of consumption. Showing evidence of smoothing. Furthermore. it seems that permanent shocks to output play a much more important role in explaining unemployment fluctuations than previously thought.

Common cycles in macroeconomic aggregates

Reduced form estimation of multivariate data sets currently takes into account long-run co-movement restrictions by using Vector Error Correction Models (VECM' s). However, short-run co-movement restrictions are completely ignored. This paper proposes a way of taking into account short-and long-run co-movement restrictions in multivariate data sets, leading to efficient estimation of VECM' s. It enables a more precise trend-cycle decomposition of the data which imposes no untested restrictions to recover these two components. The proposed methodology is applied to a multivariate data set containing U.S. per-capita output, consumption and investment Based on the results of a post-sample forecasting comparison between restricted and unrestricted VECM' s, we show that a non-trivial loss of efficiency results whenever short-run co-movement restrictions are ignored. While permanent shocks to consumption still play a very important role in explaining consumption’s variation, it seems that the improved estimates of trends and cycles of output, consumption, and investment show evidence of a more important role for transitory shocks than previously suspected. Furthermore, contrary to previous evidence, it seems that permanent shocks to output play a much more important role in explaining unemployment fluctuations.

The welfare cost of macroeconomic uncertainty in the post-war period

With standard assumptions on preferences and a fully-fledged econometric model we computed the welfare costs of macroeconomic uncertainty for post-war U.S. using the BeveridgeNelson decomposition. Welfare costs are about 0.9% per-capita consumption ($175.00) and marginal welfare costs are about twice as large.

A note on Chambers's "long memory and aggregation in macroeconomic time series"

Chambers (1998) explores the interaction between long memory and aggregation. For continuous-time processes, he takes the aliasing effect into account when studying temporal aggregation. For discrete-time processes, however, he seems to fail to do so. This note gives the spectral density function of temporally aggregated long memory discrete-time processes in light of the aliasing effect. The results are different from those in Chambers (1998) and are supported by a small simulation exercise. As a result, the order of aggregation may not be invariant to temporal aggregation, specifically if d is negative and the aggregation is of the stock type.

The behavior of temporary sales in a macroeconomic context

Nós investigamos promoções temporárias usando uma base de dados detalhada de 13 anos sobre preços ao consumidor no Brasil, com cotações de preços coletadas decendialmente. Nós encontramos forte evidências da existência de relação entre a frequência e tamanho de promoções e as variáveis macroeconômicas. A crença comum na literatura de que promoções não reagem a mudanças nas variáveis macroeconômicas pode ser devido a baixa volatilidade do cenário macro- econômico nos países analisados até o presente momento.

Price setting and macroeconomic variables: evidence from Brazilian CPI

Esta tese investiga as estratégias de precificação em ambientes macroeconômicos distintos, utilizando uma base de dados única para o IPC da Fundação Getulio Vargas. A base de dados primária consiste em um painel de dados individuais para bens e serviços representando 100% do IPC para o período de 1996 a 2008. Durante este período, diversos eventos produziram uma variabilidade macroeconômica substancial no Brasil: duas crises em países emergentes, uma mudança de regime cambial e monetário, racionamento de energia, uma crise de expectativas eleitorais e um processo de desinflação. Como consequência, a inflação, a incerteza macroeconômica, a taxa de câmbio e o produto exibiram uma variação considerável no período. No primeiro capítulo, nós descrevemos a base de dados e apresentamos as principais estatísticas de price-setting para o Brasil. Em seguida, nos capítulos 2 e 3, nos construímos as séries de tempo destas estatísticas e das estatísticas de promoções, e as relacionamos com as variáveis macroeconômicas utilizando análises de regressões. Os resultados indicam que há uma relação substancial entre as estatísticas de price-setting e o ambiente macroeconômico para a economia brasileira.

Expectativas socialmente construídas: fundamentos, formalização e resultados exploratórios

Esta tese é uma discussão crítica, sob a ótica da formação de expectativas, da relação que se interpõe entre ciência econômica, como corpo de conhecimento, e seus agentes. Primeiro, examinamos abordagens relevantes sobre expectativas na análise econômica, indicando suas insuficiências. Argumentamos que a incorporação de expectativa, em qualquer tratamento analítico, deve envolver, principalmente, fundamentos epistêmicos. Segundo, sob a perspectiva da teoria de modernidade reflexiva desenvolvida por Anthony Giddens, buscamos identificar bases plausíveis para uma teoria de expectativa econômica. Concluímos que o processo de formação de expectativa é construção social, a partir da interdependência entre expertos e leigos. Denominamos esta conclusão por hipótese de expectativas socialmente construídas (HESC). Terceiro, propusemos um arcabouço analítico para incorporar a HESC. Basicamente, informação de expectativa se difunde através da mídia e do contato face a face entre agentes. Nova informação não resulta necessariamente em revisão de expectativas, o que vai depender, principalmente, de conhecimento econômico e vizinhança do agente. Por último, um exemplo de aplicação: o modelo-HESC foi submetido a três experimentos macroeconômicos, e seus resultados comparados àqueles obtidos por Mankiw e Reis (2002). A primeira conclusão desta tese é metodológica: expectativas dos agentes em modelos macroeconômicos não são determinadas a partir de equações do próprio modelo. A segunda é normativa: conhecimento e vizinhança são capazes de perpetuar ineficiências decorrentes de erros de expectativas. A terceira está relacionado com economia positiva: as diferenças entre os resultados do modelo de informação-rígida obtidos pelos autores acima e aqueles do modelo-HESC apontam para novas possibilidades explanatórias.

An analysis of quit and dismissal determinants between 1988 and 1999 using the bivariate probit model

Excessive labor turnover may be considered, to a great extent, an undesirable feature of a given economy. This follows from considerations such as underinvestment in human capital by firms. Understanding the determinants and the evolution of turnover in a particular labor market is therefore of paramount importance, including policy considerations. The present paper proposes an econometric analysis of turnover in the Brazilian labor market, based on a partial observability bivariate probit model. This model considers the interdependence of decisions taken by workers and firms, helping to elucidate the causes that lead each of them to end an employment relationship. The Employment and Unemployment Survey (PED) conducted by the State System of Data Analysis (SEADE) and by the Inter-Union Department of Statistics and Socioeconomic Studies (DIEESE) provides data at the individual worker level, allowing for the estimation of the joint probabilities of decisions to quit or stay on the job on the worker’s side, and to maintain or fire the employee on the firm’s side, during a given time period. The estimated parameters relate these estimated probabilities to the characteristics of workers, job contracts, and to the potential macroeconomic determinants in different time periods. The results confirm the theoretical prediction that the probability of termination of an employment relationship tends to be smaller as the worker acquires specific skills. The results also show that the establishment of a formal employment relationship reduces the probability of a quit decision by the worker, and also the firm’s firing decision in non-industrial sectors. With regard to the evolution of quit probability over time, the results show that an increase in the unemployment rate inhibits quitting, although this tends to wane as the unemployment rate rises.