Partial economic reforrns and financial crises: an emerging markets perspective

The recent emerging market experiences have posed a challenge to the conventional wisdom that unsustainable fiscal deficits are the key to understanding financial crises in these countries. The health of the domestic banking system has emerged as the main driving force behind the perverse dynamics of partial reforms. The current paper shares this view and uses a model of contractual inefliciencies in the banking sector to understand the dynamics of these reforms. We find that the threat of a large exchange rate devaluation depends on the stock of international reserves relative to the stock of domestic credit that must be extended by the Central Bank in response to a large capital outflow. Moreover, if a country has a weak banking sector but high net reserve ratios, the capital flow reversal might only increase the vulnerability to a currency crisis without necessarily causing it. The results are in accordance with much of the empiricalliterature on the determinants of financiaI crises in emerging markets. Some aspectsof the recent policy debate on the introduction of capital controls are also analysed.

Sovereignty, exchange rate and the Euro crisis

This paper presents an interpretation of the European crisis based on the balance of payments imbalances within the Eurozone and highlighting the role of the “internal” real exchange rates as a primary cause of the crisis. It explores the structural contradictions that turn the Euro into a “foreign currency” for each individual Eurozone country. These contradictions imply the inability of national central banks to monetize the public and private debts, which makes the Euro crisis a sovereign crisis similar to those typical of emerging countries, but whose solution presents additional obstacles.

Endogenous supply of fiat money

We address whether reputation concerns can discipline the behavior of a self-interested agent who has a monopoly over the provision of fiat money. We obtain that when this agent can commit to a plan of action, there is a monetary equilibrium where it never overissues. We show, however, that such equilibrium is no longer possible when there is no commitment. This happens because the incentives this agent has to maintain a reputation for providing valuable currency disappear once its reputation is high enough. More generally, we prove that there is no monetary equilibrium where overissue happens only infrequently. We conclude by showing that imperfect memory can restore the positive result obtained in the presence of commitment.

Optimal exchange rate policy, optimal incomplete taxation and business cycles

Implementation and collapse of exchange rate pegging schemes are recur- rent events. A currency crisis (pegging) is usually followed by an economic downturn (boom). This essay explains why a benevolent government should pursue Þscal and monetary policies that lead to those recurrent currency crises and subsequent periods of pegging. It is shown that the optimal policy induces a competitive equilibrium that displays a boom in periods of below average de- valuation and a recession in periods of above average devaluation. A currency crisis (pegging) can be understood as an optimal policy answer to a recession (boom).

Inglorious revolution : sovereign debt, tropical credibility, and financial underdevelopment in imperial Brazil

In 1824 the creation of institutions that constrained the monarch’s ability to unilaterally tax, spend, and debase the currency put Brazil on a path toward a revolution in public finance, roughly analogous to the financial consequences of England’s Glorious Revolution. This credible commitment to honor sovereign debt resulted in successful long-term funded borrowing at home and abroad from the 1820s through the 1880s that was unrivalled in Latin America. Some domestic bonds, denominated in the home currency and bearing exchange clauses, eventually circulated in European financial markets. The share of total debt accounted for by long-term funded issues grew, and domestic debt came to dominate foreign debt. Sovereign debt yields fell over time in London and Rio de Janeiro, and the cost of new borrowing declined on average. The market’s assessment of the probability of default tended to decrease. Imperial Brazil enjoyed favorable conditions for borrowing, and escaped the strong form of “original sin” stressed by recent work on sovereign debt. The development of vibrant private financial markets did not, however, follow from the enhanced credibility of government debt. Private finance in Imperial Brazil suffered from politicized market interventions that undermined the development of domestic capital markets. Private interest rates remained high, entry into commercial banking was heavily restricted, and limited-liability joint-stock companies were tightly controlled. The Brazilian case provides a powerful counterexample to the general proposition of North and Weingast that institutional changes that credibly commit the government to honor its obligations necessarily promote the development of private finance. The very institutions that enhanced the credibility of sovereign debt permitted the systematic repression of private financial development. In terms of its consequences for domestic capital markets, the liberal Constitution of 1824 represented an “inglorious” revolution.

Debt management in Brazil: evaluation of the Real Plan and challenges ahead

The Brazilian domestic debt has posed two challenges to policy-makers: it has grown very fast and its maturity is extremely short. This has prompted fears that a default or a compulsory lengthening scheme would be imposed. Here, we analyse the domestic public debt management experience in Brazil, searching for policy prescriptions for the next few years. After briefiy reviewing the recent domestic public debt history, we decompose the large rise in federal bonded debt during 1995-2000, searching for its macroeconomic causes. The main culprits are the extremely high interest payments-which, unti11998, were caused by the weak fiscal stance and the quasi-fixed exchange-rate regime; and since 1999, by the impact ofthe currency depreciation On the dollar-indexed and the externai debt-, and the accumulation of assets of doubtful value, much of which may have to be written off in the future. Simulation exercises of the net debt path for the near future underscore the importance of a tighter fiscal stance to prevent the debt-GDP ratio from growing further. Given the need to quickly lengthen the debt maturity, our main policy advice is to foster, and rely more on, infiation-linked bonds.

Relevância das diferenças entre contratos futuros e a termo: o caso do trio

Visando estudar as diferenças entre contratos futuros e contratos a termo no mercado cambial brasileiro, este trabalho foca no contrato de Dólar Futuro negociado na BM&FBOVESPA que, para vencimentos sem liquidez, é marcado a mercado pelo preço teórico dos contratos a termo. Uma simulação por Monte Carlo de uma carteira hedgeada contendo contratos de Dólar Futuro, DI Futuro e DDI Futuro mostra claramente que essa metodologia de marcação a mercado deveria ao menos ser revista

Especificação da paridade descoberta de juros no mercado brasileiro

Medimos a validade da paridade descoberta de juros – PDJ - para o mercado brasileiro no período de janeiro de 2010 a julho de 2014. Testamos a equação clássica da PDJ usando o Método dos Mínimos Quadrados Ordinários. Após a estimação dos parâmetros, aplicamos o Teste de Wald e verificamos que a paridade descoberta de juros não foi validada. Estendemos a equação tradicional da PDJ para uma especificação alternativa que captura medidas de risco Brasil e de alteração na liquidez internacional. Especificamente, acrescentamos três variáveis de controle: duas variáveis dummy que capturam condições de liquidez externa e o índice de commoditie CRB, que captura o risco Brasil. Com a especificação alternativa, a hipótese de que os retornos das taxas de juros em Real, dolarizadas, são iguais aos retornos da taxas de juros contratadas em dólares, ambas sujeitas ao risco Brasil, não foi rejeitada. Em complemento à análise das taxas representativas do mercado brasileiro, procurou-se avaliar a predominância da PDJ nas operações de swap cambial realizadas pela Vale S.A.. Para tanto, a série de taxa de juros em dólares do mercado brasileiro foi substituída pela taxa em dólar dos swaps contratados pela Vale. Os resultados encontrados demonstram que, quando comparado ao comportamento do mercado, as taxas em dólares da VALE são mais sensíveis às variações das taxas em Reais.

Time-dependent or state-dependent pricing? Evidence from a large devaluation episode

State-dependent and time-dependent price setting models yield distinct implications for how frequency and magnitude of price changes react to shocks. This note studies pricing behavior in Brazil following the large devaluation of the Brazilian Real in 1999 to distinguish between models. The results are consistent with state-dependent pricing

Moedas sociais digitais: estudo de caso de duas experiências em bancos comunitários

Este trabalho parte de duas experiências de implantação de moedas sociais digitais pelo poder público para responder se a introdução de uma tecnologia de pagamentos digital, em conjunto com moedas sociais, pode modificar conceitos básicos de comunidade e sociedade ou se é a tecnologia que precisa se adaptar a estes conceitos. Com os casos representando polos opostos na teoria de Tönnies em termos de comunidade/sociedade, têm-se como hipótese que a introdução da tecnologia em moedas sociais precisa estar em linha com conceitos básicos de comunidade, solidariedade, pertencimento, entre outros, de acordo com o frame de cada experiência. Como resultado, há poucas evidências que possam ser tidas neste momento como definitivas. Resta especular que o uso da tecnologia de pagamentos digitais como forma de ganho de escala do modelo de economia solidária em sociedades do tipo gemeinschaft encontra falta de elementos facilitadores que incentivem sua implementação e uso, sendo que, novamente, indaga-se que as tecnologias disponíveis de moedas sociais digitais parecem ser pouco congruentes com o próprio conceito de comunidade que faz parte do cerne da economia solidária e de sociedades locais do tipo gemeinschaft, podendo haver maior proximidade com sociedades do tipo gesellschaft. Em adição a isto, especula-se que (1) mesmo havendo êxito na implantação de moedas sociais digitais em comunidades do tipo gemeinschaft, que isto somente se confirmará mediante a criação de um modelo inovador de tecnologia de pagamentos que leve em conta o capital social dessas localidades; (2) as tecnologias hoje existentes para confecção de uma moeda social digital tendem a um ganho de escala que pode mostrar alguma incompatibilidade com pequenas comunidades onde o senso solidário é maior que o individual; (3) forçar a adoção de moedas sociais digitais em pequenas comunidades do tipo gemeinschaft pode eventualmente levar a um maior grau de individualização e à contratualização das relações interpessoais, dado que hoje muitas das relações nestas comunidades contêm alto grau de pessoalidade e informalidade; (4) havendo uma implementação de moedas sociais digitais de cima para baixo, este modelo tende a ser mais propício para experiências liberais focadas nos indivíduos do que para experiências comunitárias focadas no desenvolvimento do modelo pela própria comunidade. Como contribuição teórica, o estudo tenta mostrar o potencial do uso da teoria de Tönnies com o conceito de frames de Goffman.

Estrutura a termo de taxas de juros : determinantes macroeconômicos : aplicação do modelo de Svensson para o Brasil

Este trabalho visa sistematizar um modelo para previsão e explicação dos movimentos de curto prazo da estrutura a termo de taxas de juros pré-fixada em reais do Brasil, baseado na relação dos movimentos em questão com os níveis e alterações que se processam nas variáveis macroeconômicas relevantes. A metodologia usada foi dividir o procedimento em duas etapas: Na primeira etapa, o modelo de Svensson (1994) é usado para ajustar a Estrutura a Termo de Taxas de Juros de cada data específica para obter os parâmetros daquela data. Isso é conseguido através da maximização da estatística R2 na regressão de mínimos quadrados, como sugerido no artigo original de Nelson e Siegel (1987). Então, as medianas dos dois parâmetros de decaimento utilizados são calculadas e mantidas arbitrariamente constantes para facilitar os cálculos da segunda etapa. Na segunda etapa, uma vez que os estimadores que melhor se ajustam às curvas de juros foram obtidos, outra regressão de MQO é realizada considerando os betas de Svensson dependentes de variáveis macroeconômicas de estado.

The BRICS: some historical experiences, growth challenges and opportunities

The acronym BRICS was a fad among the media and global investors. Now, the acronym sounds passé. However, the group of countries remains important, from both political and economic reasons. They have a large aggregate size, 28% of the global GDP and 42% of the world’s population, high growth potential due to the current significant misallocation of resources and relatively low stock of human capital, structural transformation is in progress and one of them, China, is taking steps to become a global power and a challenger to the US dominance. This paper provides a brief overview of the five economies, Brazil, Russia, India, China and South Africa. We focus on some aspects of their history, the Chinese initiatives in international finance and geopolitical strategic moves, their growth experience and structural transformation over the last 35 years, trade and investment integration into the global economy and among themselves, the growth challenges faced by their economies and the potential gains to the Brazilian economy from a stronger integration with the other BRICS. In association with its efforts to be a global power, China aims to become a major player in global finance and to achieve the status of global currency for the renminbi, which would be the first currency of an emerging economy to attain such position. Despite the similarities, the BRICS encompass very diverse economies. In the recent decades, China and India showed stellar growth rates. On the other hand, Brazil, Russia and South Africa have expanded just in line with global output growth with the Russian economy exhibiting high volatility. China is by far the largest economy, and South Africa the smallest, the only BRICS economy with a GDP lower than US$ 1 trillion. Russia abandoned communism almost 25 years ago, but reversed many of the privatizations of 90’s. China is still ruled by communism, but has a vibrant private sector and recently has officially declared market forces to play a dominant role in its economy. Brazil, Russia and South Africa are global natural resources powerhouses and commodity exporters while China and India are large commodity importers. Brazil is relatively closed to international trade of goods and services, in marked contrast to the other four economies. Brazil, India and South Africa are dependent on external capital flows whereas China and Russia are capital exporters. India and South Africa have younger populations and a large portion living below the poverty line. Despite its extraordinary growth experience that lifted many millions from poverty, China still has 28% of its population classified as poor. Russia and China have much older populations and one of their challenges is to deal with the effects of a declining labor force in the near future. India, China and South Africa face a long way to urbanization, while Brazil and Russia are already urbanized countries. China is an industrial economy but its primary sector still absorbs a large pool of workers. India is not, but the primary sector employs also a large share of the labor force. China’s aggregate demand structure is biased towards investment that has been driving its expansion. Brazil and South Africa have an aggregate demand structure similar to the developed economies, with private consumption accounting for approximately 70%. The same similarity applies to the supply side, as in both economies the share of services nears 70%. The development problem is a productivity problem, so microeconomic reforms are badly needed to foster long-term growth of the BRICS economies since they have lost steam due a variety of factors, but fundamentally due to slower total factor productivity growth. China and India are implementing ambitious reform programs, while Brazil is dealing with macroeconomic disequilibria. Russia and South Africa remain mute about structural reforms. There are some potential benefits to Brazil to be extracted from a greater economic integration with the BRICS, particularly in natural resources intensive industries and services. Necessary conditions to the materialization of those gains are the removal of the several sources of resource misallocation and strong investment in human capital.

Impacto dos países desenvolvidos e emergentes na economia brasileira

A proposta desta dissertação é analisar o comportamento econômico brasileiro em relação às demais economias de países emergentes e desenvolvidos, utilizando-se como metodologia a análise de componentes principais com variáveis de crescimento econômico e macroeconômicas como inflação, bolsa, moeda e juros. Visando obter uma robustez maior nos resultados foram realizados dois exercícios, primeiro buscou-se comparar o resultado obtido para o Brasil com outros países. No segundo exercício a comparação foi realizada para diferentes períodos de tempo, de maneira de separar o período em pré e pós-crise de 2009.

The distortion of currencies misalignments on trade Instruments: or why currencies wars are not over

The negotiations of mega agreements between the US and the Pacific countries (TPP) and between the US and the EU (TTIP) are raising the attention of experts on international trade law and economics. TPP and TTIP are proclaimed to be the designers of the rules for the XXI Century. Old trade instruments such as tariffs are said to be no more important for TTIP because tariffs are negligible among those partners but significant to for TPP. Another relevant agreement in negotiation is between the EU and Mercosul, where tariffs are the most important issue in discussion. The main purpose of this paper is to shows that tariff are important for all these agreements, not because of its nominal value, but because the impacts of exchange rate misalignments on tariffs are so significant that all concessions can be distorted by overvalued and by devaluated currencies. The article is divided into several sections: the first gives an introduction to the issue; the second explains the methodologies used to determine exchange rate misalignments and also presents some results for Brazil, US and China; the third summarizes the methodology applied to calculate the impacts of exchange rate misalignments on the level of tariff protection through an exercise of “misalignment tariffication” and examines the effects of exchange rate variations on tariffs and their consequences for the multilateral trading system; the fourth creates a methodology to estimate exchange rates against a basket of currencies (a virtual currency of the World) and a proposal to deal with persistent and significant misalignments related to trade rules. The fifth presents some estimates for the main PTAs. The conclusions are present in the last section

O “elo perdido” entre a organização mundial do comércio e o fundo monetário internacional

One of the main objectives of the Bretton Woods negotiations was to guarantee the firm control over competitive exchange rate devaluations, which had worsened the effects of the economic crisis of the 1930s. The par value exchange rate system was thus created, representing a link between the international financial system and the international trading system, guaranteeing, to the latter, the neutrality of the currency issue. The present article analyses how the institutional revolutions suffered by the IMF ended up representing the loss of this link and discusses its consequences to the WTO