Fabio Kanczuk

Plant-Size Distribution and Cross-Country Income Differences

We investigate, using plant-level data for 79 developed and developing countries, whether differences in the allocation of resources across heterogeneous plants are a significant determinant of cross-country differences in income per worker. For this purpose, we use a standard version of the neoclassical growth model augmented to incorporate monopolistic competition among heterogeneous plants. For our preferred calibration, the model explains 58% of the log variance of income per worker. This figure should be compared to the 42% success rate of the usual model.

Optimal Reserve Management and Sovereign Debt

To study the joint decision of holding sovereign debt and reserves, we construct a stochastic dynamic equilibrium model that incorporates willingness-to-pay incentive problems. In this setup, debt and assets are not perfect substitutes, as reserves can be used even after a country has defaulted. We calibrate the model to a sample of emerging markets. We obtain that the reserve accumulation does not play a quantitatively important role in this model. In fact, the optimal policy is not to hold reserves at all. This finding is robust to considering interest rate shocks, sudden stops, contingent reserves and reserve dependent output costs.

Demand for Bank Services and Market Power in Brazilian Banking

We use bank-level data to model the demand for bank services in Brazil following the discrete choice literature. A multinomial logit specification is used to study the demand for time deposits, for an aggregate of demand and passbook savings deposits, and for loans. Market for each of these products is defined at the municipality level. In the supply side, we find the absolute price-cost margins consistent with Bertrand competition and with cartel. Our results suggest that even Bertrand competition overestimates the degree of market power in the Brazilian banking industry.

Debt Maturity: Is Long-Term Debt Optimal?

We model and calibrate the arguments in favor and against short-term and long-term debt. These arguments broadly include: maturity premium, sustainability, and service smoothing. We use a dynamic-equilibrium model with tax distortions and government outlays uncertainty, and model maturity as the fraction of debt that needs to be rolled over every period. In the model, the benefits of defaulting are tempered by higher future interest rates. We then calibrate our artificial economy and solve for the optimal debt maturity for Brazil as an example of a developing country and the US as an example of a mature economy. We obtain that the calibrated costs from defaulting on long-term debt more than offset costs associated with short-term debt. Therefore, short-term debt implies higher welfare levels.

Juros reais e ciclos reais brasileiros

This paper presens a dynamic general equilibrium model to assess the quantitative relation between fluctuations in real interest rates and business cycles in the Brazilian economy. When firms are subject to working capital restrictions, the model is consistent with the cyclical volatilities of national income components as well as with the countercyclical character of real interest rates. Simulations with alternative Taylor rules indicate how econometric estimations of the dynamic IS curve are susceptible to the Lucas critique. The paper suggests how the inflation targeting model currently used by the Central Bank of Brazil should be transformed to incorporate its findings.

Sovereign Debt: Indexation and Maturity

In this paper we review the literature on sovereign debt with particular emphasis on indexation and maturity and the main policy proposals related to these topics. We also advance some implications derived from our work. In Alfaro and Kanczuk (2005a, b, c), we modeled sovereign debt as a contingent claim following the framework developed by Grossman and Van Huyck (1988). Our framework, however, recognizes that contingent debt might be associated with incentive problems. Applying this framework to the study of the sustainability of sovereign debt, the tradeoff between nominal and indexed debt, and the optimal debt maturity, we find some of the proposals advanced in the literature regarding lengthening debt maturity and issuing nominal debt to be unsustainable in emerging (volatile) economies.

Um Termômetro para as Macro-Prudenciais

Desenvolvemos um modelo com friccoes no credito tanto para firmas como familias. Credito as firmas e tratado como nos modelos de acelerador financeiro (e.g. Bernanke et al (1999)). Os juros sobre os recursos emprestados as familias dependem de seu endividamento, como em Curdia e Woodford (2010). O modelo e estimado para o Brasil, utilizado para estudar os episodios de desaceleracao, e para a extracao dos premios de financiamento (destilados a partir de dados nao financeiros), os quais sao comparados com informacoes sobre credito as pessoas fisicas e juridicas. Dessa forma, o obtem-se um termometro para mensurar como medidas prudenciais sobre o credito afetam atividade e inflacao.

The Impacts of Climate Change in the Brazilian Economy (Impactos Econômicos das Mudanças Climáticas no Brasil)

The climate transition projected by the Intergovernmental Panel on Climate Change – IPCC – will affect the world’s natural resources, economy, and societies to an extent which is not yet known. The study The Economics of Climate Change in Brazil (EMCB) is a pioneering initiative aimed at analyzing and quantifying the impact of climate change on the country’s development agenda. Without a greater evidence base of these trends, decision makers do not have the instruments needed to identify the more serious and urgent risks and to evaluate and implement prevention and adjustment measures which are more efficient in terms of cost and benefits.For the first time in the country, a large interdisciplinary team, comprised primarily of scientists of the country’s main research centers, gathered to make projections regarding various sectors. The starting point were computational models that provided projections on future national climate trends, such as temperatures, precipitation levels and hydrologic flows. These projections were used in models for certain sectors of the economy, and translated into economic terms the expected impacts in each sector, according to two future climate trends projected by the IPCC – scenarios A2 and B2.These IPCC climate trends are based on hypotheses regarding the future behavior of the global economy. This study attempted, to the extent possible, to simulate the future behavior of the Brazilian economy in a manner which was compatible with the hypotheses set forth by the IPCC for the global economy. The scenarios projected for the Brazilian economy were A2-BR, which was simulated with and without climate change according to IPCC’s A2 climate scenario, and B2-BR, which was simulated with and without climate change according to IPCC’s B2 scenario. Both generated future trends for the Brazilian economy, based on IPCC’s economic assumptions for climate scenario A2 and climate scenario B21.Although the climate problems associated with global warming are long-term, the year of 2050 was established as the horizon for the simulations, thus excluding the more severe effects on productivity and Gross Domestic Product (GDP) which will become more severe after the second half of the 21st century. This was necessary since the uncertainties involved – especially macroeconomic – are still too large, and because the database was unable to support long-term projections. Some sector analyses, however, go beyond 2050 In spite of this time restriction, this study concentrated on the average behavior of the variables, given the difficulty to adequately address the uncertainties in the models’ extreme climate change situations.One of the main conclusions is that the worst effects of climate change shall take place in the North and Northeastern regions, the country’s poorest, and that, as a result, the cost of inaction today shall be the worsening of regional and income inequalities.