Jose Angelo Divino

Real wage rigidity and the new Phillips curve: the Brazilian case

The new Keynesian Phillips curve has been criticized for not explaining the short-run inflation-output gap trade-off. Blanchard and Gali (2007) introduced real wage rigidity and derived a trade-off between stabilizing inflation and the gap between actual and efficient output. This paper estimates the new Phillips curve for the Brazilian economy, computes short-run trade-off, analyzes real wage rigidity, and tests theoretical restrictions imposed by the model. The GMM estimations fit the data very well and all theoretical restrictions are satisfied. There is strong real wage rigidity and a high output-gap cost to stabilize inflation in the short run.

Revisiting the Fisher hypothesis for the cases of Argentina, Brazil and Mexico

This paper investigates the validity of the Fisher effect hypothesis that it is the interest rate that moves to adjust to anticipated changes in the rate of inflation. The analysis is carried out with monthly data for the period 1980-1997 for three countries that have a recent history of chronic high inflation: Argentina, Brazil and Mexico. A cointegration analysis provided evidence of a stable long-run equilibrium relationship between nominal interest rates and the inflation rate for the cases of Argentina and Brazil only.

Dominância fiscal ou dominância monetária no Brasil? Uma análise de causalidade

The aim of this study is to verify whether there is fiscal or monetary dominance in the Brazilian economy in the period of the post-Real plan. We investigate the long run equilibrium relationship and bivariate and multivariate Granger causality among the variables nominal interest rate, debt to GDP ratio, primary surplus to GDP ratio, real exchange rate and risk premium. The results have shown Brazil as a country under monetary dominance regime, according to Sargent and Wallace (1981) definition. In addition, the model proposed by Blanchard (2004) does not find empirical support in the Brazilian economy.

Inflation, Unemployment, and the Time Consistency of the US Monetary Policy

This paper verifies the performance of the Barro and Gordon (1983) model to explain the US inflation since the early 1950s. We divide the period from 1951:2 to 2010:2 according to each chairman of the Federal Reserve (FED). In addition, we consider aggregated periods, represented by pre-Volcker, Volcker-Greenspan, Greenspan-Bernanke, and whole sample. A genetic algorithm of stochastic search is applied to reduce the sensitivity of the maximum likelihood estimator to the initial parameter values. Surprisingly, our results show that the time consistency problem explains the US inflation during the Greenspan chairmanship at the FED.

Interest rates and default in unsecured loan markets

This paper investigates how interest rates affect the probability of default (PD) in a general equilibrium incomplete markets economy. We show that the PD depends positively on the loan interest rate and negatively on the economy base interest rate. Empirically, this finding is confirmed by estimation of the Cox proportional hazard model with time-varying covariates using a sample of 445 889 individual contracts from a large Brazilian bank. Among the controls are macroeconomic variables and specific characteristics of the contracts and borrowers. A lower base interest rate, implied by easing monetary policy, leads banks to lend more money for riskier borrowers, increasing the PD.

Finance, Banking, and Regulation in Emerging Economies: An Overview

This special issue of Emerging Markets Finance & Trade features selected papers presented at the International Conference on Finance, Banking, and Regulation, held at Catholic University of Brasília’s campus II (UCB [acronym in Portuguese]) in Brasília, Brazil, on July 16–18, 2014. This conference was a joint effort of UCB’s Graduate Program in Economics and the Society for the Study of Emerging Markets. The conference featured four keynote speaker presentations by Ali Kutan, Gulnur Muradoglu, Jouko Vilmunen, and Pedro Gomis-Porqueras plus thirty-seven regular session articles, seven of which appear in this special issue of Emerging Markets Finance & Trade. The twenty-first century saw the rise of new powers to the center stage of global politics. The acronym BRICS, referring to the largest economies among these rising powers (Brazil, Russia, India, China, and South Africa), became a frequent reference in the specialized media. What these countries have in common is that they are frequently referred to as “developing economies” or “emerging markets.” They lack many of the institutions that make markets function in the developed world, and yet they have been growing and claiming a more prominent role in world politics. It is increasingly important, thus, for social scientists to better understand how emerging markets work. Do we see in these markets the same stylized facts commonly seen in developed economies? If so, do we observe any differences in the magnitude and scope of these phenomena? The International Conference on Finance, Banking, and Regulation included studies that shed light on these issues. This special issue gathers some of the outstanding work presented at the conference. In the first article, Luiz Alberto D’Ávila de Araújo and Joaquim Pinto de Andrade model the yield curve using a continuous estimation method: the smooth transition regression. The authors focus their analysis on the Brazilian case and show that nonlinearities in the yield curve may explain the pitfalls of monetary policy; that is, its lack of effectiveness in specific periods. These results represent an important contribution to the issue of monetary policy design for emerging markets. In the second featured article, Livia F. Pimentel and Leonardo P. Santiago study the problem of portfolio selection of pension funds. They solve the optimal portfolio problem when risk-free assets are not available to investors. Pimentel and Santiago perform this analysis using stochastic dynamic programming methods combined with Monte Carlo simulations when investors’ preferences have hyperbolic absolute risk aversion (HARA) utility functions. They conclude, among other things, that HARA utility functions are better than constant relative risk aversion (CARA) utility functions to characterize the optimal portfolio selection. The third article of this special edition, written by Vanessa Hoffmann De Quadros, Juan Carlos González-Avella, and José Roberto Iglesias, contributes to the ongoing debate on how to model financial contagion using complex network tools. The authors show that both size and network topology are relevant to evaluate the spread of financial crises (contagion) through the network. An

Fiscal and monetary policy interactions: a game theory approach

The interaction between fiscal and monetary policy is analyzed by means of a game theory approach. The coordination between these two policies is essential, since decisions taken by one institution may have disastrous effects on the other one, resulting in welfare loss for the society. We derived optimal monetary and fiscal policies in context of three coordination schemes: when each institution independently minimizes its welfare loss as a Nash equilibrium of a normal form game; when an institution moves first and the other follows, in a mechanism known as the Stackelberg solution; and, when institutions behave cooperatively, seeking common goals. In the Brazilian case, a numerical exercise shows that the smallest welfare loss is obtained under a Stackelberg solution which has the monetary policy as leader and the fiscal policy as follower. Under the optimal policy, there is evidence of a strong distaste for inflation by the Brazilian society.

Taxa de juros e default em mercados de empréstimos colateralizados

This paper investigates how changes in interest rates affect the probability of default (PD) in a general equilibrium model with incomplete markets and collateral requirement. Theoretically, the PD has a positive relationship with the loan real interest rate and negative with the economy real interest rate. Empirically, those relationships are confirmed by the estimation of the Cox proportional hazard model for a large sample of collateralized loans. Among the control variables, there are characteristics of the individuals, contracts, and economy as a whole. Intuitively, a lower real interest rate reduces earnings from financial operations, leading the banks to increase their credit portfolios by lending for riskier individuals.

Modelling the Growth and Volatility in Daily International Mass Tourism to Peru

Peru is a South American country that is divided into two parts by the Andes Mountains. The rich historical, cultural and geographic diversity has led to the inclusion of ten Peruvian sites on UNESCO’s World Heritage List. For the potential negative impacts of mass tourism on the environment, and hence on future international tourism demand, to be managed appropriately require modelling growth rates and volatility adequately. The paper models the growth rate and volatility (or the variability in the growth rate) in daily international tourist arrivals to Peru from 1997 to 2007. The empirical results show that international tourist arrivals and their growth rates are stationary, and that the estimated symmetric and asymmetric conditional volatility models all fit the data extremely well. Moreover, the estimates resemble those arising from financial time series data, with both short and long run persistence of shocks to the growth rate in international tourist arrivals.

Exchange Rate and Output Fluctuations in the Small Open Economy of Mauritius

The authors estimate a VAR and compute generalized impulse response to analyze the joint dynamics of four key macroeconomic variables in the small open economy of Mauritius. Results suggest that nominal exchange rate and interest rate have limited ability to impact output growth over the medium-run. Large error bands hinder analysis of the inflation output trade-off, but evidence points to a weak relationship in the short run as well. These findings are used to shed some light into the policy response to the current worldwide economic slowdown affecting Mauritius.