Octávio Augusto Fontes Tourinho

Elasticidades de Armington para o Brasil: 1986-2002

We estimate the Armington elasticity for the 28 industrial sectors of the Brazilian input-output table, for the period 1986-2002. The methodology we use takes into account the stochastic properties of the data series, and the effects of the Brazilian foreign trade liberalization that occurred in 1990. We obtain statistically significant estimates of the elasticities for 24 sectors, and their estimated values are in the interval 0.2 to 3.6, with a weighted average of 0.9. For tree sectors the estimated elasticity is not significantly different from zero, and for one sector we find a significant elasticity, but it has the wrong sign.

Implicações econômicas da reforma tributária: análise com um modelo CGE

This paper uses a computable general equilibrium model (CGE) on the Brazilian economy to measure the impacts of recent changes in the national tax structure. It describes the model, discusses its characteristics, formulation, construction and calibration, and uses it to analyze three tax changes: the partial transformation of COFINS into a contribution over value added, and the incidence of PIS/PASEP and COFINS on imports, both approved in 2003, and the extinction of CPMF, which was adopted only in 2007. The comparative static analysis allows the detailed identification of the long term effects of those changes on economic performance, at the macro and sector levels, after all the transitory effects are exhausted, and their indirect effectsare absorbed.

Cointegrated Periodically Collapsing Bubbles in the Exchange Rate of ‘BRICS’

ABSTRACT We test the occurrence of periodically recurring rational bubbles in the exchange rate of each of the “BRICS” countries currency relative to the US dollar. The forward exchange rate is used as a proxy for the expected exchange rate, different Purchasing Parity Power (PPP)-based rules for the fundamental exchange rate are considered, and its initial value is endogenously determined. For the chosen model, the regime switching equation satisfactorily fits the data, confirming the presence of rational bubbles for all countries. The dynamics of the exchange rate series for each country is interpreted with the help of the estimated bubbles. The bubbles are compared across countries, found to be cointegrated, and this is interpreted as evidence of the international transmission of exchange rate shocks between these countries.

Further evidence on the law of factor proportionality in multiple households closed CGE models

ABSTRACT This article provides additional evidence that factor contents of different consumers’ consumption bundles computed from multiple households closed Computable General Equilibrium (CGE) models are approximately proportional. This empirical regularity has been observed up to now for a total of 11 CGEs for very diverse countries, and we therefore state it as law. It implies that these models display price rigidity with respect to endowment re-allocations, an observation which has broad implications for their capacity to capture general equilibrium effects.

Cointegrated Periodically Collapsing Bubbles in the Exchange Rate of 'BRICS' Countries

This paper tests the occurrence of rational bubbles in the exchange rate of Brazil, Russia, India, China and South Africa (the ‘BRICS’ countries group) against the US dollar. We consider bubbles of the periodically recurring variety, and assume that the fundamental value follows a modified PPP relation which takes into account interest rate differentials, starting from a reference value which is endogenously determined. At each point in time the probability of collapse of the bubble to is a nonlinear logistic function of the absolute size of the bubble and is, therefore, also endogenous. The expected next period bubble size if the future regime is collapse is a linear function of the current bubble size whose parameters are also endogenously estimated. The estimation uses a maximum likelihood procedure, and the results support the model, which passes the specification tests. The hypothesis of rational expectations in the market for the forward exchange rate, which is used as a proxy of the expected exchange rate, is also tested and accepted for 3 of the 5 countries. The hypothesis of two linear regimes (rather than the non-linear regimes we use) is also tested and rejected for 3 of the 5 countries. We discuss the dynamics of the absolute bubble, and also compare the time series of the bubbles for the several countries, relative to the corresponding fundamental value. We test for unit roots in the relative bubbles and find that they are integrated, and that they pass Johansen’s the cointegration test. Finally we estimate an error correction model to discuss the long term relation between the relative bubbles and the speed of adjustment of each country’s relative bubble to shocks to the long term relation between them.

Revisiting the Tourinho real options model: outstanding issues 30 years later

This article presents and extends the first known model in real options, proposed in Tourinho (1979), and provides thoughts on addressing issues that are still outstanding 30 years later. It discusses the need to ensure the existence of market equilibrium when applying real options valuation to price assets, once all agents behave as suggested by the solution to the pricing equation. It argues that this can be achieved by using a stochastic process for the price that is sufficiently general to respond to supply and demand imbalances in the market for the resource. Once the individual decision rules are derived, the parameters of the process must be determined to ensure market equilibrium exists. For reserves of natural resources, this can be done by using a mean-reverting process for the price of the commodity and ensuring that the long-term price to which it reverts equals the trigger price for development of the marginal reserve.

Armington elasticities for Brazil

In this article we estimate substitution elasticities for goods distinguished by place of production, specifying whether they are imported or produced domestically. These are known as the Armington (1969) elasticities and are widely used to assess the impact on the domestic economy of policy changes in countries’ tariff structures; and, in particular, to evaluate the costs and benefits of signing free trade agreements. The sample period for our study is 1986-2002, and the estimation is done separately for each of the 28 industrial sectors specified in the Brazilian input-output table. Special consideration is given to the fact that the data is affected by import restrictions for part of that period, and that foreign trade liberalization occurred in Brazil in 1990. The estimation procedure is automated and takes into consideration the stochastic dynamic properties of the quantity and price series, using the appropriate estimation approach in each case. The Armington elasticities we estimate have the correct sign, and are significant at the 5% level for 20 sectors, at 10% for two sectors, and at 20% for two others. In one sector the estimated value is significant, but has the incorrect sign (negative). For three sectors the estimated elasticity is not significantly different from zero; but these represent only 12% of the average value of total import value in the period 1997-2002. The point estimate of the elasticity of substitution, for the sectors where it is positive and statistically different from zero, varies from 0.16 to 3.6; and its weighted average value is 0.93.

Endogenous Foreign Capital Flow in a CGE Model for Brazil: The Role of International Reserves

Neste artigo admitimos que o fluxo de capital externo para o Brasil subordina-se auma decisao de investimento cujo nivel de risco depende da taxa esperada de perda dereservas internacionais. Isso foi motivado pela estimacao que fazemos de uma relacaoempirica entre essas duas variaveis que e valida para periodos em que nao ha crise debalanco de pagamentos. Essa relacao foi entao introduzida em um modelo estatico deequilibrio geral aplicado, um CGE, que havia sido anteriormente desenvolvido noIPEA para o Brasil, para produzir uma versao com fluxo de capital externo endogeno.Depois de ajustar a calibragem do ano-base do modelo (1998) para levar em conta ainclusao dessa equacao nele, o artigo compara a resposta das duas versoes do modelo asimulacao da implementacao de dois acordos de livre-comercio: o Alca e o acordocom a Uniao Europeia. A principal conclusao e que a endogeneizacao do fluxo decapital externo amplia o efeito simulado sobre a economia real desses acordos de livrecomercio. In this paper we model foreign capital flow to Brazil as stemming from an investmentdecision that whose risk depends on the expected rate of loss of foreign reserves. Thismotivates the estimation of an empirical relationship between these two variables thatis valid for ?normal? periods (when there is no foreign exchange crisis) which is usedto calculate the capital flow associated with a given expected rate of foreign reservesloss. This empirical relationship is then introduced in a static General EquilibriumModel for Brazil which has exogenous foreign capital flow and follows a relativelystandard specification, to produce a version of it with endogenous capital flow. Afteremploying the inverse of the estimated relationship to calculate the differencebetween the expected and the realized values of the reserve loss in 1998, and using itto adjust the base year data, we recalibrate the model and compare the response of thetwo versions of the model to a simulation of the implementation of two free tradeagreements: with the Americas (ALCA) and with the European Union. The mainconclusion is that the inclusion of endogenous foreign capital flow in the modelsignificantly amplifies, and in some cases changes, the real effects of these free tradeagreements.

Armington Elasticities for Brazil - 1986-2002: New Estimates

The structure introduced by Armington (1969) has been used to analyze trade policy in partial and general equilibrium models. The Armington elasticities, the degree of substitution between domestic and import goods are known to be important, but are seldom estimated empirically. Therefore, we estimate them for 28 industrial sectors, based on the Brazilian Input-Output table over the period 1986-2000. Initially we discuss the construction of the data set and the treatment that was given to the relative prices, for taking into account the trade liberalization initiated in 1990. According to the dynamic properties of the data we estimate four different econometric models. 25 out of the 28 sectors had positive and significant Armington estimates that were significant at the ten-percent level. They range between 0,16 e 4,95, which reflects the different degree of substitutability between domestic and import goods in the Brazilian industry.