Browse the categories to access the content of academic, scientific and opinion publications of the professors and students of the Department of Economics PUC-Rio.

Countercyclical Credit Policies and Banking Concentration: Evidence from Brazil (a sair)

Journal of Banking and Finance


We study the asymmetric effects of procyclical and countercyclical expansions of public banks’ credit on economic growth. Using a panel of Brazilian municipalities (2009-2014) and the same identification strategy as Greenstone et al. (2020), we show that the effect of public credit on the economic performance of Brazilian municipalities was more substantial in 2009, the only year in our sample in which the public credit policy was countercyclical. Interestingly, our estimates also suggest that the effect of credit policies on growth is more salient when the banking market is more concentrated. Guided by the empirical results we built a theoretical model, which is calibrated with Brazilian data. Policy experiments based on the model demonstrate that countercyclical public credit policies are more effective than procyclical public credit policies. In line with the empirical results, the theoretical model also shows that public credit policies in general (either in booms or in recessions) are more efficient when credit markets are more concentrated. This result indicates that the structure of credit markets is crucial to explain the impact of public credit policies on growth.

Paulo Rodrigo Capeleti, Márcio Garcia, Fábio Miessi Sanches.

Short-Term Covid-19 Forecast for Latecomers

International Journal of Forecasting

V 38, P 467-488, 20/06/2022

The number of Covid-19 cases is increasing dramatically worldwide, with several countries experiencing a second and worse wave. Therefore, the availability of reliable forecasts for the number of cases and deaths in the coming days is of fundamental importance. We propose a simple statistical method for short-term real-time forecasting of the number of Covid-19 cases and fatalities in countries that are latecomers  i.e., countries where cases of the disease started to appear some time after others. In particular, we propose a penalized (LASSO) regression with an error correction mechanism to construct a model of a latecomer in terms of the other countries that were at a similar stage of the pandemic some days before. By tracking the number of cases in those countries, we forecast through an adaptive rolling-window scheme the number of cases and deaths in the latecomer. We apply this methodology to four dierent countries: Brazil, Chile, Mexico, and Portugal. We show that the methodology performs very well. These forecasts aim to foster a better short-run management of the health system capacity and can be applied not only to countries but to dierent regions within a country, as well.

Marcelo Medeiros, Alexandre Street, Davi Valladão, Gabriel F. R. Vasconcelos, Eduardo Zilberman.

Do We Exploit all Information for Counterfactual Analysis? Benefits of Factor Models and Idiosyncratic Correction

Journal of the American Statistical Association.

V 117, P 574-590 , 04/06/2022

In this paper we survey the most recent advances in supervised machine learning and highdimensional models for time series forecasting. We consider both linear and nonlinear alternatives. Among the linear methods we pay special attention to penalized regressions and ensemble of models. The nonlinear methods considered in the paper include shallow and deep neural networks, in their feed-forward and recurrent versions, and tree-based  methods, such as random forests and boosted trees. We also consider ensemble and hybrid models by combining ingredients from different alternatives. Tests for superior predictive ability are briefly  reviewed. Finally, we discuss application of machine learning in economics and finance and provide an illustration with high-frequency financial data

Marcelo Medeiros, Ricardo Masini, Jianqing Fan.

DETERring Deforestation in the Brazilian Amazon: Environmental Monitoring and Law Enforcement (a sair)

American Economic Journal: Applied Economics


This paper proposes a novel instrumental variable to estimate the causal impact of law enforcement on deforestation. DETER, a satellite-based system for mapping land cover, is the key tool in Amazon monitoring. It determines the location of recent forest clearings and is used to target enforcement. Because DETER cannot detect land cover patterns beneath clouds, it detects no clearings in covered areas. Results conrm that DETER cloud coverage is systematically correlated with nes, a proxy for the presence of law enforcers. The study explores this exogenous source of variation in the allocation of law enforcers as an instrument for the intensity of enforcement. Stricter law enforcement eectively deterred Amazon deforestation, helping avoid over 22,000 km2 of cleared forest area per sample year. Leakage of criminal activity into neighboring areas does not appear to have occurred. Results are submitted to a series of robustness checks.

Juliano Assunção, Clarissa Costalonga e Gandour, Romero Cavalcanti Barreto da Rocha.

Regularized estimation of high-dimensional vector autoregressions with weakly dependent innovations

Journal of Time Series Analysis

V 43, P 532-557, 01/04/2022

There has been considerable advance in understanding the properties of sparse regularization procedures in high-dimensional models. In time series context, it is mostly restricted to Gaussian autoregressions or mixing sequences. We study oracle properties of LASSO estimation of weakly sparse vector-autoregressive models with heavy tailed, weakly dependent innovations with virtually no assumption on the conditional heteroskedasticity. In contrast to current literature, our innovation process satisfy an L1 mixingale type condition on the centered conditional covariance matrices. This condition covers L1-NED sequences and strong mixing sequences as particular examples. From a modeling perspective, it covers several multivariate-GARCH specifications, such as the BEKK model, and other factor stochastic volatility specifications that were ruled out by assumption in previous studies.

Marcelo Medeiros, Eduardo F. Mendes, Ricardo Pereira Masini.

Optimal Environmental Targeting in the Amazon Rainforest (a sair)

Review of Economic Studies


This paper sets out a data-driven approach for targeting environmental policies optimally in order to combat deforestation. We focus on the Amazon, the world's most extensive rainforest, where Brazil's federal government issued a `Priority List' of municipalities in 2008 { a blacklist to be targeted with more intense environmental monitoring and enforcement. First, we estimate the causal impact of the Priority List on deforestation (along with other relevant treatment effects) using `changes-in-changes' (Athey and Imbens, 2006), finding that it reduced deforestation by 43 percent and cut emissions by 49 million tons of carbon. Second, we develop a novel framework for computing targeted optimal blacklists that draws on our treatment effect estimates, assigning municipalities to a counterfactual list that minimizes total deforestation subject to realistic resource constraints. We show that the ex-post optimal list would result in carbon emissions

Juliano Assunção, Robert MacMillan, Joshua Murphy, Eduardo Souza-Rodrigues.

Counterfactual Analysis and Inference With Nonstationary Data

Journal of Business & Economic Statistics

V 40, N 1, P 227-239, 22/03/2022

Recently, there has been growing interest in developing econometric tools to conduct counterfactual analysis with aggregate data when a single “treated” unit suffers an intervention, such as a policy change, and there is no obvious control group. Usually, the proposed methods are based on the construction of an artificial/synthetic counterfactual from a pool of “untreated” peers, organized in a panel data structure. In this article, we investigate the consequences of applying such methodologies when the data comprise integrated processes of order 1, I(1), or are trend-stationary. We find that for I(1) processes without a cointegrating relationship (spurious case) the estimator of the effects of the intervention diverges, regardless of its existence. Although spurious regression is a well-known concept in time-series econometrics, they have been ignored in most of the literature on counterfactual estimation based on artificial/synthetic controls. For the case when at least one cointegration relationship exists, we have consistent estimators for the intervention effect albeit with a nonstandard distribution. Finally, we discuss a test based on resampling which can be applied when there is at least one cointegration relationship or when the data are trend-stationary.

Marcelo Medeiros, Ricardo Masini.

Collateral Shocks

American Economic Journal: Macroeconomics

V 14, P 83-103, 21/03/2022

We estimate a macroeconomic model on US data where banks lend to households and businesses and simultaneously adjust lending requirements on the two types of loans. We find that the collateral shock, a change in the ability of the financial sector to redeploy collateral, is the most important force driving the business cycle. Hit by this unique disturbance, our model quantitatively replicates the joint dynamics of output, consumption, investment, employment, and both household and business credit quantities and spreads. The estimated collateral shock generates accurate movements in lending standards and tracks measures of market sentiment.

Yvan Bécard, David Gauthier.

Quantile regression methods for first-price auctions

Journal of Econometrics

V 226, P 224-247, 17/03/2022

The paper proposes a quantile-regression inference framework for first-price auctions with symmetric risk-neutral bidders under the independent private-value paradigm. It is first shown that a private-value quantile regression generates a quantile regression for the bids. The private-value quantile regression can be easily estimated from the bid quantile regression and its derivative with respect to the quantile level. This also allows to test for various specification or exogeneity null hypothesis using the observed bids in a simple way. A new local polynomial technique is proposed to estimate the latter over the whole quantile level interval. Plug-in estimation of functionals is also considered, as needed for the expected revenue or the case of CRRA risk-averse bidders, which is amenable to our framework. A quantile-regression analysis to USFS timber is found more appropriate than the homogenized-bid methodology and illustrates the contribution of each explanatory variables to the private-value distribution. Linear interactive sieve extensions are proposed and studied in the Appendices. 

Emmanuel Guerre, Nathalie Gimenes.

A Simple Model of Network Formation with Competition Effects

Journal of Mathematical Economics

V 99, 11/03/2022

This paper provides a game-theoretic model of network formation with a continuous effort choice. Efforts are strategic complements for direct neighbors in the network and display global substitution/competition effects. We show that if the parameter governing local strategic complements is larger than the one governing global strategic substitutes, then all pairwise Nash equilibrium networks are nested split graphs. We also consider the problem of a planner, who can choose effort levels and place links according to a network cost function. Again all socially optimal configurations are such that the network is a nested split graph. However, the socially optimal network may be different from equilibrium networks and efficient effort levels do not coincide with Nash equilibrium effort levels. In the presence of strategic substitutes, Nash equilibrium effort levels may be too high or too low relative to efficient effort levels. The relevant applications are crime networks and R&D collaborations among firms, but also interbank lending and trade.

Timo Hiller.

Analysis of Sharpe Ratio with Ultra-High Dimensions: Residual-Based Nodewise Regression in Factor Models (a sair)

Journal of Econometrics


We provide a new theory for nodewise regression when the residuals from a fitted factor model are used. We apply our results to the analysis of the consistency of Sharpe Ratio estimators when there are many assets in a portfolio. We allow for an increasing number of assets as well as time observations of the portfolio. Since the nodewise regression is not feasible due to the unknown nature of idiosyncratic errors, we provide a feasible-residual-based nodewise regression to estimate the precision matrix of errors which is consistent even when number of assets, p, exceeds the time span of the portfolio, n. In another new development, we also show that the precision matrix of returns can be estimated consistently, even with an increasing number of factors andp>n. We show that: (1) withp>n, the Sharpe Ratio estimators are consistent in global minimum-variance and mean–variance portfolios; and (2) withp>n, the maximum Sharpe Ratio estimator is consistent when the portfolio weights sum to one; and (3) withp<<n, the maximum-out-of-sample Sharpe Ratio estimator is consistent.

Mehmet Caner, Marcelo Medeiros, Gabriel F. R. Vasconcelos.

Semiparametric Quantile Models for Ascending Auctions with Asymmetric Bidders

Journal of Business & Economic Statistics

V 40, P 1020-1033, 23/02/2022

The article proposes a parsimonious and flexible semiparametric quantile regression specification for asymmetric bidders within the independent private value framework. Asymmetry is parameterized using powers of a parent private value distribution, which is generated by a quantile regression specification. As noted in Cantillon, this covers and extends models used for efficient collusion, joint bidding and mergers among homogeneous bidders. The specification can be estimated for ascending auctions using the winning bids and the winner’s identity. The estimation is in two stage. The asymmetry parameters are estimated from the winner’s identity using a simple maximum likelihood procedure. The parent quantile regression specification can be estimated using simple modifications of Gimenes. Specification testing procedures are also considered. A timber application reveals that weaker bidders have 30% less chances to win the auction than stronger ones. It is also found that increasing participation in an asymmetric ascending auction may not be as beneficial as using an optimal reserve price as would have been expected from a result of Bulow and Klemperer valid under symmetry.

Emmanuel Guerre, Jayeeta Bhattacharya , Nathalie Gimenes.

Earnings Inequality and Dynamics in the Presence of Informality: The Case of Brazil (a sair)

Quantiative Economics


Using rich administrative and household survey data spanning 34 years from 1985 to 2018, we document a series of new facts on earnings inequality and dynamics in a developing country with a large informal sector: Brazil. Since the mid-1990s, both inequality and volatility of earnings have declined significantly in Brazil’s formal sector. Higher-order moments of the distribution of earnings changes show cyclical movements in Brazil that are similar to those in developed countries like the US. Relative to the formal sector, the informal sector is associated with a significant earnings penalty and higher earnings volatility for identical workers. Earnings changes of workers who switch from formal to informal (from informal to formal) employment are relatively negative (positive) and large in magnitude, dispersed, negatively (positively) skewed, and less leptokurtic. Our results suggest that informal employment is an imperfect insurance mechanism

Niklas Engbom, Christian Moser, Gustavo Gonzaga, Roberta Souza Costa Olivieri.

Household expenditure in the wake of terrorism : evidence from high frequency in-home-scanner data

Economics & Human biology

V 46, 30/01/2022

This paper adds to the scant literature on the impact of terrorism on consumer behaviour, focusing on household spending on goods that are sensitive to brain-stress neurocircuitry. These include sweet- and fat-rich foods but also home necessities and female-personal-hygiene products, the only female-targeted good in our data. We examine unique continuous in-home-scanner expenditure data for a representative sample of about 15,000 French households, observed in the days before and after the terrorist attack at the Bataclan concert-hall. We find that the attack increased expenditure on sugar-rich food by over 5% but not that on salty food or soda drinks. Spending on home maintenance products went up by almost 9%. We detect an increase of 23.5% in expenditure on women’s personal hygiene products. We conclude that these effects are short-lived and driven by the responses of households with children, youths, and those residing within a few-hours ride of the place of the attack.

D. Mirza, Elena Stancanelli, Thierry Verdier.

Taylor Rule Estimation by OLS

Journal of Monetary Economics

V 124, P 140-154, 06/12/2021

Ordinary Least Squares (OLS) estimation of monetary policy rules produces potentially inconsistent estimates of policy parameters. The reason is that central banks react to variables, such as inflation and the output gap, that are endogenous to monetary policy shocks. Endogeneity implies a correlation between regressors and the error term – hence, an asymptotic bias. In principle, Instrumental Variables (IV) estimation can solve this endogeneity problem. In practice, however, IV estimation poses challenges, as the validity of potential instruments depends on various unobserved features of the economic environment. We argue in favor of OLS estimation of monetary policy rules. To that end, we show analytically in the three-equation New Keynesian model that the asymptotic OLS bias is proportional to the fraction of the variance of regressors due to monetary policy shocks. Using Monte Carlo simulations, we then show that this relationship also holds in a quantitative model of the U.S. economy. Since monetary policy shocks explain only a small fraction of the variance of regressors typically included in monetary policy rules, the endogeneity bias tends to be small. For realistic sample sizes, OLS outperforms IV. Finally, we estimate a standard Taylor rule on different subsamples of U.S. data and find that OLS and IV estimates are quite similar.

Carlos Viana de Carvalho, Fernanda Feitosa Nechio, Tiago Santana Tristão.

Persistent Monetary Non-neutrality in an Estimated Menu-Cost Model with Partially Costly Information (a sair)

AEJ Macroeconomics


We propose a model that reconciles microeconomic evidence of frequent and large price changes with sizable monetary non-neutrality. Firms incur separate lump-sum costs to change prices and to gather and process some information about marginal costs. Additional relevant information is continuously available, and can be factored into pricing decisions at no cost. We estimate the model by Simulated Method of Moments, using price-setting statistics for the U.S. economy. The model with free idiosyncratic and costly aggregate information fits well both targeted and untargeted microeconomic moments and generates more than twice as much monetary non-neutrality as the Calvo model.

Carlos Viana de Carvalho, Marco Bonomo, Rene Garcia, Vivian Malta Nunes, Rodolfo Dinis Rigato.

Jumps in Stock Prices: New Insights from Old Data (a sair)

Journal of Financial Markets


We characterize jump dynamics in stock market returns using a novel series of intraday prices covering over 80 years. Jump dynamics vary substantially over time. Trends in jump activity relate to secular shifts in the nature of news. Unscheduled news often involving major wars drives jump activity in early decades, whereas scheduled news and especially news pertaining to monetary policy drives jump activity in recent decades. Jump variation measures forecast excess stock market returns, consistent with theory. Results support models featuring a separate jump factor such that risk premium dynamics are not fully captured by volatility state variables

Bradley S. Paye, James A. Johnson, Marcelo Medeiros.

Informal Labor and the Efficiency Cost of Social Programs: Evidence from the Brazilian Unemployment Insurance Program

American Economic Journal: Economic Policy

V 13, P 167-206, 28/07/2021

t is widely believed that the presence of a large informal sector increases the efficiency cost of social programs in developing countries. We evaluate such claims for the case of Unemployment Insurance (UI) by combining an optimal UI framework with comprehensive data from Brazil. Using quasi-experimental variation in potential UI duration, we find clear evidence for the usual moral hazard problem that UI reduces incentives to return to a formal job. Yet, the associated efficiency cost is lower than in the U.S., and is lower in labor markets with higher informality within Brazil. This is because formal reemployment rates are lower to begin with where informality is higher, so that a larger share of workers would draw UI benefits absent any moral hazard. In sum, efficiency concerns may actually become more relevant as an economy formalizes.

Gustavo Gonzaga, François Gerard.

Do Multinationals Transplant their Business Model?

Economic Journal

V 131, P 899–945, 06/07/2021

What determines whether or not multinational firms transplant the mode of organisation to other countries? We embed the theory of knowledge hierarchies in an industry equilibrium model of monopolistic competition to examine how the economic environment may affect the decision of multinational firms about transplanting the mode of organization to other countries. We test the theory with original and matched parent and affiliate data on the level of decentralization of 660 Austrian and German multinational firms and 2200 of their affiliate firms in Eastern Europe. We find that market competition in both home and host markets is an important driver of organizational transfer to host countries: An increase in competition in the home (host) market by 10 percentage points lowers (increases) the probability of transplanting by 9 (7) percentage points.

D. Marin , L. Rousová, Thierry Verdier.

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