Do capital controls boost EME´s resilience to financial crises?

Capital controls are again in vogue as a number of emerging markets have reintroduced these measures in recent years in response to a “flood” of international capital. Policymakers use these tools to buttress their economies against the “sudden stop” risk that accompanies international capital flows. Using a panel VAR model, we show that capital controls appear to make emerging market economies (EMEs) more resistant to financial crises by showing that lower post-crisis output loss is correlated with stronger capital controls. However, EMEs that employ capital controls seem to be more crisis-prone. Thus, policymakers should carefully evaluate whether the benefits of capital controls outweigh their costs.

Essays on banking theory and history of financial arrangements

Esta tese contém dois capítulos, cada um lidando com a teoria e a história dos bancos e arranjos financeiros. No capítulo 1, busca-se extender uma economia Diamond-Dybvig com monitoramento imperfeito dos saques antecipados e realizar uma comparação do bem estar social em cada uma das alocações possíveis, como proposto em Presscott and Weinberg(2003). Esse monitoramento imperfeito é implementado a partir da comunicação indireta ( através de um meio de pagamento) entre os agentes e a máquina de depósitos e saques que é um agregado do setor produtivo e financeiro. A extensão consiste em estudar alocações onde uma fração dos agentes pode explorar o monitoramento imperfeito e fraudar a alocação contratada ao consumirem mais cedo além do limite, usando múltiplos meios de pagamento. Com a punição limitada no período de consumo tardio, essa nova alocação pode ser chamada de uma alocação separadora em contraste com as alocações agregadoras onde o agente com habilidade de fraudar é bloqueado por um meio de pagamento imune a fraude, mas custoso, ou por receber consumo futuro suficiente para tornar a fraude desinteressante. A comparação de bem estar na gama de parâmetros escolhida mostra que as alocações separadoras são ótimas para as economias com menor dotação e as agregadoras para as de nível intermediário e as ricas. O capítulo termina com um possível contexto histórico para o modelo, o qual se conecta com a narrativa histórica encontrada no capítulo 2. No capítulo 2 são exploradas as propriedade quantitativas de um sistema de previsão antecedente para crises financeiras, com as váriaveis sendo escolhidas a partir de um arcabouço de ``boom and bust'' descrito mais detalhadamente no apêndice 1. As principais variáveis são: o crescimento real nos preços de imóveis e ações, o diferencial entre os juros dos títulos governamentais de 10 anos e a taxa de 3 meses no mercado inter-bancário e o crescimento nos ativos totais do setor bancário. Essas variáveis produzem uma taxa mais elevada de sinais corretos para as crises bancárias recentes (1984-2008) do que os sistemas de indicadores antecedentes comparáveis. Levar em conta um risco de base crescente ( devido à tendência de acumulação de distorções no sistema de preços relativos em expansões anteriores) também provê informação e eleva o número de sinais corretos em países que não passaram por uma expansão creditícia e nos preços de ativos tão vigorosa.

Development banks, risk and Basle II: some assessments

The implementation of the Basle II agreement in the financial markets of world economies has been seen as a significant advance in relation to the model enforced under the first agreement (Basle I). It is generally understood that the new agreement represents a substantial advance in relation to the first because it allows banks to better deal with the risks to which they are exposed. Nevertheless, when the application of these principles to development banks is considered it can be noted that certain inconsistencies exist, notably the fact that these institutions are typically public institutions - or at least strongly dependent on public funding - and they do not operate the payment system of the economy. Therefore, the application of the Basle rules to these institutions does not make sense. This means that Basle does not represent an appropriate set of recommendations for how these institutions should deal with their risks, whether because the proposed form of dealing with risks is inadequate, or because other relevant risks for these institutions are not covered by Basle I and II.

Public debt management, monetary policy and financial institutions

Despite the large size of the Brazilian debt market, as well the large diversity of its bonds, the picture that emerges is of a market that has not yet completed its transition from the role it performed during the megainflation years, namely that of providing a liquid asset that provided positive real returns. This unfinished transition is currently placing the market under severe stress, as fears of a possible default from the next administration grow larger. This paper analyzes several aspects pertaining to the management of the domestic public debt. The causes for the extremely large and fast growth ofthe domestic public debt during the seven-year period that President Cardoso are discussed in Section 2. Section 3 computes Value at Risk and Cash Flow at Risk measures for the domestic public debt. The rollover risk is introduced in a mean-variance framework in Section 4. Section 5 discusses a few issues pertaining to the overlap between debt management and monetary policy. Finally, Section 6 wraps up with policy discussion and policy recommendations.

Cálculo do Value at Risk (VaR) para o Ibovespa, pós crise de 2008, por meio dos modelos de heterocedasticidade condicional (GARCH) e de volatilidade estocástica (Local Scale Model - LSM)

O objetivo deste estudo é propor a implementação de um modelo estatístico para cálculo da volatilidade, não difundido na literatura brasileira, o modelo de escala local (LSM), apresentando suas vantagens e desvantagens em relação aos modelos habitualmente utilizados para mensuração de risco. Para estimação dos parâmetros serão usadas as cotações diárias do Ibovespa, no período de janeiro de 2009 a dezembro de 2014, e para a aferição da acurácia empírica dos modelos serão realizados testes fora da amostra, comparando os VaR obtidos para o período de janeiro a dezembro de 2014. Foram introduzidas variáveis explicativas na tentativa de aprimorar os modelos e optou-se pelo correspondente americano do Ibovespa, o índice Dow Jones, por ter apresentado propriedades como: alta correlação, causalidade no sentido de Granger, e razão de log-verossimilhança significativa. Uma das inovações do modelo de escala local é não utilizar diretamente a variância, mas sim a sua recíproca, chamada de “precisão” da série, que segue uma espécie de passeio aleatório multiplicativo. O LSM captou todos os fatos estilizados das séries financeiras, e os resultados foram favoráveis a sua utilização, logo, o modelo torna-se uma alternativa de especificação eficiente e parcimoniosa para estimar e prever volatilidade, na medida em que possui apenas um parâmetro a ser estimado, o que representa uma mudança de paradigma em relação aos modelos de heterocedasticidade condicional.

The development of the private equity industry since the 2008 financial crisis

The private equity industry was experiencing a phenomenal boom at the turn of the century but collapsed abruptly in 2008 with the onset of the financial crisis. Considered one of the worst crises since the Great Depression of the 1930s, it had sent ripples around the world threatening the collapse of financial institutions and provoking a liquidity crunch followed by a huge downturn in economic activity and recession. Furthermore, the physiognomy of the financial landscape had considerably altered with banks retracting from the lending space, accompanied by a hardening of financial regulation that sought to better contain systemic risk. Given the new set of changes and challenges that had arisen from this period of financial turmoil, private equity found itself having to question current practices and methods of operation in order to adjust to the harsh realities of a new post-apocalyptic world. Consequently, this paper goes on to explore how the private equity business, management and operation model has evolved since the credit crunch with a specific focus on mature markets such as the United States and Europe. More specifically, this paper will aim to gather insights on the development of the industry since the crisis in Western Europe through a case study approach using as a base interviews with professionals working in the industry and those external to the sector but who have/have had considerable interaction with PE players from 2007 to the present.

Microinsurance: income risk, social security and the demand for private onsurance by low-income families

Insurance provision against uncertainties is present in several dimensions of peoples´s lives, such as the provisions related to, inter alia, unemployment, diseases, accidents, robbery and death. Microinsurance improves the ability of low-income individuals to cope with these risks. Brazil has a fairly developed financial system but still not geared towards the poor, especially in what concerns the insurance industry. The evaluation of the microinsurance effects on well-being, and the demand for different types of microinsurance require an analysis of the dynamics of the individual income process and an assessment of substitutes and complementary institutions that condition their respective financial behavior. The evaluation of the microinsurance effects on well-being, and the demand for different types of microinsurance require an analysis of the dynamics of the individual income process and an assessment of substitutes and complementary institutions that condition their respective financial behavior. The Brazilian government provides a relatively developed social security system considering other countries of similar income level which crowds-out the demand for insurance and savings. On the other hand, this same public infrastructure may help to foster microfinance products supply. The objective of this paper is to analyze the demand for different types of private insurance by the low-income population using microdata from a National Expenditure Survey (POF/IBGE). The final objective is to help to understand the trade-offs faced for the development of an emerging industry of microinsurance in Brazil.

Valuing emerging markets companies : new approaches to determine the effective exposure to country risk

The aim of this paper is to propose new methods to measure the effective exposure to country risk of emerging-market companies. Starting from Damodaran (2003), we propose seven new approaches and a revised CAPM for emerging markets companies. The “Prospective Lambda” represents the effective exposure according to analysts’ estimates of growth. The “Relative Lambda” relies on the firm value estimated through a relative valuation. The “Retrospective Lambda” represents the ex-post effective exposure to country risk. The “Company Effective Risk Premium” is a generalization of the Retrospective Lambda, and expresses the premium effectively requested by investors to invest in that specific company in the past year. “The Actual Lambda” and the “Company Actual Risk Premium” represent, respectively, the actual exposure to country risk of a company and the actual premium requested by investors to invest in that specific company. The “Industry Lambda” reflects the median exposure to country risk of the industry in which the company belongs. We tested our new measures of exposure to country risk on the Latin American emerging markets companies according to the classification of the MSCI Emerging Markets Latin America Index. The results confirm that the new approaches can be effectively applied by financial analysts to stable-growth companies that operate in emerging markets and to mature markets companies that operate in emerging markets, providing with a more reliable estimate of both the premium effectively requested by investors in the past and the actual premium. Applying the new approaches, the cost of equity reflects the effective exposure of a company to country risk without being over- or underestimated, as is the case with other existing approaches.

Asymmetric preferences in investment decisions in the Brazilian financial market

The main objective of this article is to test the hypothesis that utility preferences that incorporate asymmetric reactions between gains and losses generate better results than the classic Von Neumann-Morgenstern utility functions in the Brazilian market. The asymmetric behavior can be computed through the introduction of a disappointment (or loss) aversion coefficient in the classical expected utility function, which increases the impact of losses against gains. The results generated by both traditional and loss aversion utility functions are compared with real data from the Brazilian market regarding stock market participation in the investment portfolio of pension funds and individual investors.

Mild gestational hyperglycaemia as a risk factor for metabolic syndrome in pregnancy and adverse perinatal outcomes

Objective The aims of this study were to evaluate the prevalence of metabolic syndrome (MS) in a cohort of pregnant women with a wide range of glucose tolerance, pre-pregnancy risk factors for MS during pregnancy and the effects of MS in the occurrence of adverse perinatal outcomes.Research Design and Methods One hundred and thirty six women with positive screening for gestational diabetes (GDM) were classified by two diagnostic methods: glycaemic profile and 100 g oral glucose tolerance test (OGTT) as normoglycaemic, mild gestational hyperglycaemic, GDM, and overt GDM. Markers of insulin resistance were measured between 24-28 and 36th week of gestation, and 6 weeks after delivery.Results The prevalence of MS was 0; 20.0; 23.5 and 36.4% in normoglycaemic, mild hyperglycaemic, GDM and overt GDM groups, respectively. Previous history of GDM with or without insulin use, body mass index (BMI) >= 25, hypertension, family history of diabetes in first-degree relatives, non-Caucasian ethnicity, history of prematurity and polyhydramnios were statistically significant pre-pregnancy predictors for MS in the index pregnancy, that by its turn increased the occurrence of adverse perinatal outcomes (p = 0.01).Conclusions The prevalence of MS increases with the worsening of glucose tolerance and is an independent predictor of adverse perinatal outcomes; impaired glycaemic profile identifies pregnancies with important metabolic abnormalities that are linked to the occurrence of adverse perinatal outcomes even in the presence of a normal OGTT, in patients that are not currently classified as having GDM. Copyright (C) 2008 John Wiley & Sons, Ltd.

Dietary whey protein lessens several risk factors for metabolic diseases: a review

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Demographic and metabolic characteristics of individuals with progressive glucose tolerance

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Pancreatic β-cell defects in women at risk of type 2 diabetes

We evaluated insulin release and insulin sensitivity in women with basal and/or postprandial hyperglycemia but normal oral glucose tolerance test (OGTT) in previous pregnancy (GHG). These women were individually matched with females without previous hyperglycemia (NGT). Both groups consisted of normal glucose-tolerant women at the time of this study. They underwent OGTT (75g; n= 32 pairs) and hyperglycemic clamp experiments (10mmoll-1; n=27 pairs) with plasma glucose, insulin, and C-peptide measurements and calculation of insulinogenic index, first- and second-phase insulin release, and insulin sensitivity index (ISI). The GHG group showed higher glycosylated hemoglobin levels (6.2±0.6% versus 5.8±0.8%; P<0.05); lower insulinogenic index at 30min (134.03±62.69pmolmmol-1 versus 181.59±70.26pmolmmoll-1; P<0.05) and diminished C-peptide response in relation to glucose (4.05±0.36nmolmmol-1 versus 4.23±0.36nmolmmol-1; P<0.05) at OGTT. Both groups did not show difference in insulin secretion and ISI by hyperglycemic clamp technique. We concluded that in up to 12 years from index pregnancy, women with previous GHG, presenting normal glucose tolerance and well-matched with their controls, showed β-cell dysfunction without change in ISI. As women with previous GHG are at risk of type 2 diabetes, β-cell dysfunction may be its primary defect. © 2003 Elsevier B.V. All rights reserved.

Independent impact of glycemia ad blood pressure in albuminuria on high-risk subjects for metabolic syndrome

Background: Microalbuminuria may reflect diffuse endothelial damage. Considering that diabetes and hypertension cause vasculopathy, we investigated associations of albumin-to-creatinine ratio (ACR) with plasma glucose and blood pressure levels in high-risk subjects for metabolic syndrome. Methods: A sample of 519 (246 men) Japanese-Brazilians (aged 60 ± 11 years), who participated in a population-based study, had their ACR determined in a morning urine specimen. Backward models of multiple linear regression were created for each gender including log-transformed values of ACR as dependent variable; an interaction term between diabetes and hypertension was included. Results: Macroalbuminuria was found in 18 subjects. ACR mean values for subjects with normal glucose tolerance, impaired fasting glycemia, impaired glucose tolerance and diabetes were 9.9 ± 6.0, 19.0 ± 35.4, 20.7 ± 35.4, and 33.9 ± 55.0 mg/g, respectively. Diabetic subjects showed higher ACR than the others (p < 0.05). An increase in the proportion of albuminuric subjects was observed as glucose metabolism deteriorated (4.9, 17.0, 23.0 and 36.0%). Stratifying into 4 groups according to postchallenge glycemia (< 7.8 mmol/l, n = 9 1; ≥ 7.8 mmol/l, n = 4 10) and hypertension, hypertensive and glucose-intolerant subgroups showed higher ACR values. ACR was associated with gender, waist circumference, blood pressure, plasma glucose and triglyceride (p < 0.05); albuminuric subjects had significantly higher levels of such variables than the normoalbuminuric ones. In the final models of linear regression, systolic blood pressure and 2-hour glycemia were shown to be independent predictors of ACR for both genders (p < 0.05). In men, also waist was independently associated with ACR. No interaction was detected between diabetes and hypertension. Conclusions: These findings suggest that both glucose intolerance and hypertension could have independent but not synergistic effects on endothelial function - reflected by albumin loss in urine. Such hypothesis needs to be confirmed in prospective studies. © 2004 Dustri-Verlag Dr. K. Feistle.

Possible transmission of adverse shocks from the recent financial crisis to Central America through trade finance

Includes Bibliography