Alex Luiz Ferreira

The determinants of default risk in Brazil

We formulated a general unrestricted model of the Brazilian Emerging Markets Bond Index Plus (EMBI+) spreads, a proxy for the countrys default risk. Employing algorithms that perform automated model selection, we found that macroeconomic fundamentals, such as current account deficit ratio to gross domestic product, public deficit ratio to gross domestic product and imports over foreign exchange reserves, can explain a great part of the variation in EMBI+ spreads. There is also robust evidence of systematic contagion from Argentina and Mexico and that the variance of the spread also affects its mean.

On the Differences between the Marginal Product of Capital Across Countries

We extended the standard neoclassical model of investment for the case of an open economy. Our model shows that risk premium not only creates a wedge between the marginal product of capital across countries but also reduces an economys savings rate. A riskier market thus presents a lower income per capita, ceteris paribus. Our empirical analysis, from 1950 to 2003, lends support to the conclusion that both risk and the correction for output price to investment ratio help to explain the differentials.

IS IT RISK?: AN AUTOMATED APPROACH TO EXPLAIN THE EX ANTE UIP DEVIATIONS OF BRAZIL

The paper tests whether ex ante deviations from Uncovered Interest Rate Parity correspond to default risk premium. Using an automated model selection criteria and data for Brazil (from november 2001 until december 2007), we found that deviations are corre

Coffee exports and industrialization in Brazil

ABSTRACT We investigate the dynamic relationship between coffee exports and machinery imports in Brazil from 1869 to 1939. Our tests reveal cointegration and bidirectional causality in the temporal sense. This evidence suggests that foreign exchange real revenues from coffee exports were important for the onset of industrialization, as machinery imports proxy for real investment demand. Capital growth, in turn, also helped to boost the country’s exports.

Expectation Errors in the Foreign Exchange Market

This paper argues that order flow can explain exchange rate forecasting errors. A unified theoretical model is developed showing that forecasting errors can be explained by both informational rigidities and portfolio shifts. This is applied to Brazilian data using a unique data set of daily consensus exchange rate forecasts managed by the Banco Central do Brasil along with order flow derived from the FX futures market. The results strongly support the theory.

Noisy Information and Expectation Formation in the Foreign Exchange Market

Market microstructure and the imperfect common knowledge literature in macroeconomics both analyze the effect of dispersed information on prices. This paper draws on both sources to understand exchange rate forecasting errors. A theoretical model is developed showing that forecasting errors depend on both forecast revisions as in the Woodford noisy information model and order flow as in the Evans-Lyons simultaneous trade model. This is applied to Brazilian data using a unique data set of daily consensus exchange rate forecasts managed by the Banco Central do Brasil along with order flow derived from the FX futures market. The results strongly support the theory.

Carry Trade E Risco Cambial: Um Conto De Dois Fatores? (Carry Trade and Exchange Rate Risk: A Tale of Two Factors?)

Portuguese Abstract: Retornos da estrategia de carry trade tem sido explicados usando-se funcoes de utilidade inseparaveis no tempo que permitem premios de risco volateis. Tipicamente tais funcoes mimetizam as preferencias de economia fechada que dependem de bens duraveis e nao duraveis. Este trabalho retorna a uma classificacao mais tradicional, em macroeconomia internacional, de consumo entre bens domesticos e importados. O modelo e aplicado para paises que representam 99% do volume mundial do comercio bilateral de câmbio. Reporta-se uma melhora acentuada na significância dos betas de consumo.English Abstract: Carry trade returns have been explained using time inseparable utility functions which allow for volatile risk premia. However these functions typically mimic closed economy preferences which depend on durable and non-durable goods. This paper returns to a more traditional classification of consumption, in international macroeconomics, into domestic and importable goods. The model is implemented for countries that represent 99% of the world market turnover in bilateral foreign exchange trades. We report a marked improvement in estimated consumption betas.