Marco Antônio Freitas de Hollanda Cavalcanti

Dívida pública, política fiscal e nível de atividade: uma abordagem VAR para o Brasil no período 1995-2008

In this paper we investigate the real effects of fiscal policy in Brazil during the 1995-2008 period by estimating a VAR model that explicitly takes into consideration the role of public debt in the determination of fiscal variables, as recommended by (Favero & Giavazzi 2007). According to our results, it really makes a difference whether one takes into account the public debts role in the fiscal policy process; more specifically, models that omit the public debt are likely to overestimate the real effects of fiscal policy shocks.

Robustness and Stabilization Properties of Monetary Policy Rules in Brazil

Based on three versions of a small macroeconomic model for Brazil, this paper presents empirical evidence on the effects of parameter uncertainty on monetary policy rules and on the robustness of optimal and simple rules over different model specifications. By comparing the optimal policy rule under parameter uncertainty with the rule calculated under purely additive uncertainty, we find that parameter uncertainty should make policymakers react less aggressively to the economy’s state variables, as suggested by Brainard’s “conservatism principle”, although this effect seems to be relatively small. We then informally investigate each rule’s robustness by analyzing the performance of policy rules derived from each model under each one of the alternative models. We find that optimal rules derived from each model perform very poorly under alternative models, whereas a simple Taylor rule is relatively robust. We also find that even within a specific model, the Taylor rule may perform better than the optimal rule under particularly unfavorable realizations from the policymaker’s loss distribution function. Este texto analisa a robustez e as propriedades de estabilizacao de regras de politica monetaria no contexto de um pequeno modelo macroeconometrico para o Brasil. Estimam-se tres versoes do modelo “padrao” da literatura recente sobre regras de politica monetaria. Em cada caso, a regra otima de politica e calculada sob incerteza puramente aditiva e sob incerteza multiplicativa. Observa-se que a incerteza sobre os parâmetros do modelo atenua os coeficientes da funcao de reacao otima das autoridades, conforme sugerido pelo “principio do conservadorismo” de Brainard — ainda que esse efeito seja relativamente pequeno. A robustez das regras de politica e investigada informalmente por intermedio da analise do desempenho da regra otima de cada modelo no contexto de cada um dos modelos alternativos. Os resultados mostram que as regras otimas derivadas de um modelo especifico tendem a apresentar desempenho muito fraco sob os demais modelos, em contraste com uma regra de Taylor simples, que se revela relativamente robusta. Finalmente, mostra-se que, mesmo no contexto de um modelo especifico, a regra de Taylor pode ter desempenho superior a regra otima, sob realizacoes particularmente desfavoraveis da distribuicao de probabilidade da funcao de perda das autoridades.

Economic Growth, The Trade Balance and the Investment-Exchange Rate Trade Off

We present projections of the trade and current account balances for Brazil in the period 2001/03. We show that external deficits shall persist during this period; given an international environment characterized by decreasing capital flows (especially those directed to emerging economies), this may impose considerable restrictions on domestic growth. We then discuss possible external adjustment strategies and their implications for domestic activity. The adjustment strategy could be based either on exchange rate devaluation or on additional investments in productive capacity. However, there are limits to both strategies, and we conclude that the evolution of the Brazilian economy during 2001/03 will depend on its ability to walk on the razors edge given by the exchange rate/investment relationship.

The Management of the Brazilian Bonded Debt Maturity from 1994 to 1997

Due to the high levels of uncertainty arising from high inflation, on the eve of the Real Plan Brazilian public debt was mainly composed of indexed bonds with very short maturities. As the stabilization program proved successful, it became possible to start changing the debts composition; thus, between July 1994 and October 1997 public debt-managing authorities aimed to increase the debts average maturity by issuing nominal securities with increasing maturities. In this paper we analyze this debt-management strategy. The underlying argument is that the increase in the debts average maturity must lead to higher debt-financing costs, as longer-term securities pay higher interest rates. We first discuss the theoretical reasons for the higher risk premia in long securities as compared to shorter ones and show that in order to increase the proportion of long-term securities in total debt government must raise interest differentials even further. We then estimate the effects of such strategy in Brazil in the period following the Real Plan.