The contagion effect of public debt on monetary policy: the brazilian experience

This paper attempts to explain why the Brazilian inter-bank interest rate is so high compared with rates practiced by other emerging economies. The interplay between the markets for bank reserves and government securities feeds into the inter-bank rate the risk premium of the Brazilian public debt.

Public debt sustainability and endogenous seignorage in Brazil: time-series evidence from 1947-92

Using national accounts data for the revenue-GDP and expenditure GDP ratios from 1947 to 1992, we examine two central issues in public finance. First, was the path of public debt sustainable during this period? Second, if debt is sustainable, how has the government historically balanced the budget after hocks to either revenues or expenditures? The results show that (i) public deficit is stationary (bounded asymptotic variance), with the budget in Brazil being balanced almost entirely through changes in taxes, regardless of the cause of the initial imbalance. Expenditures are weakly exogenous, but tax revenues are not;(ii) a rational Brazilian consumer can have a behavior consistent with Ricardian Equivalence (iii) seignorage revenues are critical to restore intertemporal budget equilibrium, since, when we exclude them from total revenues, debt is not sustainable in econometric tests.

The LDC debt problem: a game-theoretical analisys

We review the LDC debt crisis since 1982, by means of game theory. New insights are obtained into the reasons behind the formation of the creditors' carte1 and the nature of the difficu1ties invo1ved in the formation of the debtors' carte1. The standard view that Rubinstein's barganing mode1s are appropriate for dea1ing with debt re1ief is shown to be faulty, un1ess the debtor buys out the debt.

Debt ceiling and fiscal sustainability in Brazil: a quantile autoregression approach

In this paper we investigate fiscal sustainability by using a quantile autoregression (QAR) model. We propose a novel methodology to separate periods of nonstationarity from stationary ones, which allows us to identify various trajectories of public debt that are compatible with fiscal sustainability. We use such trajectories to construct a debt ceiling, that is, the largest value of public debt that does not jeopardize long-run fiscal sustainability. We make out-of-sample forecast of such a ceiling and show how it could be used by Policy makers interested in keeping the public debt on a sustainable path. We illustrate the applicability of our results using Brazilian data.

The asymmetric behavior of the U.S. public debt

In this paper we re-analyze the question of the U.S. public debt sustainability by using a quantile autoregression model. This modeling allows for testing whether the behavior of U.S. public debt is asymmetric or not. Our results provide evidence of a band of sustainability. Outside this band, the U.S. public debt is unsustainable. We also find fiscal policy to be adequate in the sense that occasional episodes in which the public debt moves out of the band do not pose a threat to long run sustainability.

Inflation and debt indexation : the equivalence of two alternative schemes for the case of periodic payments

The presence of inflation has induced the financial institutions to implement procedures devised to protect the real values of theirs loans. Two of such procedurcs, the floaaing rale scheme and the monetary correction mechanism, tend to lead to very different streams of payments. However, whenever the floating rate scheme follows the rule of Strict adhercnce to lhe Fisher equation, lhe two procedures are financially equivalent.

Essays on competition and returns of inside money

In an early paper, Cavalcanti and Wallace (2001) showed, using a computable version of Cavalcanti-Wallace model (CW-1999), that optimal regulation induces banks to pay interests, instead of contracting the money supply in an inside money allocation. Here, we generalize CW in two fashions, assuming inside money allocations, so that banks are supposed to issue money as they find a potential producer wishing to produce. The first generalization allows for seasonality due to real shocks on preferences with persistence and for monetary policy improvement. We found an asymmetric path for interest rates when constraints matter, even when shocks are independent. The second generalization allows for bank competition, in the sense that banks can choose between two different banking nets. We proof the existence of simple stable and unstable equilibria and also verify the existence of multiple equilibria.

What if firms adjust their debt-equity ratios toward a target range?

We estimate optimal target-ranges of capital structure controlling for a series of firmspecific characteristics and accounting for the serial correlation that arises from the dynamic component of the leverage choice. Then, we empirically examine if firms adjust their leverages toward the estimated optimal ranges. Our analysis suggests that the observed behavior of firms is consistent with the notion of range-adjustment.

Public debt sustainability and endogenous seigniorage in Brazil: time-series evidence from 1947-92: revised version

Using national accounts data for the revenue-GDP and expenditureGDP ratios from 1947 to 1992, we examine three central issues in public finance. First, was the path of public debt sustainable during this period? Second, if debt is sustainable, how has the government historically balanced the budget after shocks to either revenues or expenditures? Third, are expenditures exogenous? The results show that (i) public deficit is stationary (bounded asymptotic variance), with the budget in Brazil being balanced almost entirely through changes in taxes, regardless of the cause of the initial imbalance. Expenditures are weakly exogenous, but tax revenues are not; (ii) the behavior of a rational Brazilian consumer may be consistent with Ricardian Equivalence; (iii) seigniorage revenues are critical to restore intertemporal budget equilibrium, since, when we exclude them from total revenues, debt is not sustainable in econometric tests.

The risk premium on brazilian government debt, 1996-2002

The goal of this paper is to identify the determinants of the risk premium on Brazilian government debt. As the risk premium is a component of the interest rate set by the Brazilian central bank, its reduction would make it possible for the central bank to cut interest rates to levels compatible with a higher economic growth environment. The empirical evidence presented in this paper does not reject the hypotheses that fiscal solvency and the size of the public debt affect the risk premium as measured by the spread over treasury bills of the Brazilian C-bond.