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.

Abrupt Monetary Policy Change and Unanchoring of Inflation Expectations (a sair)

Journal of Monetary Economics


Inflation expectations can quickly become unanchored if the central bank undermines its commitment to the inflation target. This paper exploits a sudden change in monetary policy by the Brazilian Central Bank in 2011 and microdata from a daily survey of professional forecasters to establish support for this claim. Reanchoring came only years later, after a regime shift that included a change of government. A simple model with a well-defined concept of (un)anchored inflation expectations makes sense of and offers a structural interpretation of our empirical findings.

Daniel Adib, João Ayres, Silvia Matos, Marco Bonomo, Carlos Viana de Carvalho, Stefano Eusepi, Marina Perrupato Mendonça.

Weighted Median Inflation Around the World: A Measure of Core Inflation

Journal of International Money and Finance

V 142, 12/03/2024

The standard measure of core or underlying inflation is the inflation rate excluding food and energy prices. This paper constructs an alternative measure, the weighted median inflation rate, for 38 advanced and emerging economies using subclass level disaggretion of the CPI over 1990-2021, and compares the properties of this measure to those of standard core. For quarterly data, we find that the weighted median is less volatile than standard core, more closely related to economic slack, and more closely related to headline inflation over the next year. The weighted median also has a drawback: in most countries, it has a lower average level than headline inflation. We therefore also consider a measure of core inflation that eliminates this bias, which is based on the percentile of sectoral inflation rates that matches the sample average of headline CPI inflation.

Larry Ball, Chris Evans, Luca Ricci, Carlos Viana de Carvalho.

Persistent Monetary Non-neutrality in an Estimated Menu-Cost Model with Partially Costly Informational

AEJ Macroeconomics

V 15, P 466-505, 17/11/2023

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.

Estimating the spatial amplification of damage caused by degradation in the Amazon

Proceedings of the National Academy of Sciences (PNAS)

V 120, 14/11/2023

The Amazon rainforests have been undergoing unprecedented levels of human-induced

disturbances. In addition to local impacts, such changes are likely to cascade following

the eastern–western atmospheric flow generated by trade winds. We propose a model of

spatial and temporal interactions created by this flow to estimate the spread of effects

from local disturbances to downwind locations along atmospheric trajectories. The

spatial component captures cascading effects propagated by neighboring regions, while

the temporal component captures the persistence of local disturbances. Importantly, all

these network effects can be described by a single matrix, acting as a spatial multiplier

that amplifies local forest disturbances. This matrix holds practical implications for

policymakers as they can use it to easily map where the damage of an initial forest

disturbance is amplified and propagated to. We identify regions that are likely to cause

the largest impact throughout the basin and those that are the most vulnerable to shocks

caused by remote deforestation. On average, the presence of cascading effects mediated

by winds in the Amazon doubles the impact of an initial damage. However, there is

heterogeneity in this impact. While damage in some regions does not propagate, in

others, amplification can reach 250%. Since we only account for spillovers mediated

by winds, our multiplier of 2 should be seen as a lower bound

Juliano Assunção, José A. Scheinkman , Rafael Araujo, Marina Hirota.

Macroeconomic effects of credit deepening in Latin America

Journal of Money Credit and Banking

V 5, P 1817-1855, 30/10/2023

We augment a standard dynamic general equilibrium model with financial frictions, in order to quantify the macroeconomic effects of the credit deepening process observed in Latin America in the 2000s—most notably in Brazil. In the model, a stylized banking sector intermediates credit from patient households to impatient households and entrepreneurs. Motivated by the Brazilian experience, we allow the credit constraint faced by households to depend on labor income. Our model is designed to isolate the effects of credit deepening through demand-side channels, and abstracts from potential effects of credit supply on total factor productivity. In the calibrated model, credit deepening generates only modest above-trend growth in consumption, investment, and GDP. Since Brazil has experienced one of the most intense credit deepening processes in Latin America, we argue the quantitative effects that hinge on the channels captured by the model are unlikely to be sizable elsewhere in Latin America.

Eduardo Zilberman, Carlos Viana de Carvalho, Nilda Mercedes Cabrera Pasca, Laura Candido de Souza.

Sharpe Ratio analysis in high dimensions: Residual-based nodewise regression in factor models

Journal of Econometrics

V 235, P 393-417, 01/07/2023

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<

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

Optimal Environmental Targeting in the Amazon Rainforest

Review of Economic Studies

V 90, P 1608–1641, 01/07/2023

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.

Challenges to Disinflation: the Brazilian Experience

Brookings Papers on Economic Activity


We review two previous bouts of high inflation and disinflation since Brazil adopted inflation targeting. In both episodes, fiscal sustainability concerns were present and inflation expectations became unanchored despite substantial monetary policy tightening. Disinflation and the reanchoring of expectations took time and proved costly, as both episodes entailed a recession. They required tight monetary policy combined with critical shifts toward structural economic reforms and sound fiscal policy. The ongoing episode features the same fiscal concerns and unanchored inflation expectations. This suggests the path ahead for disinflation will be challenging, unless policies change direction. We also speculate whether the Brazilian experience can provide insights for other countries. 

Carlos Viana de Carvalho, Fernanda Feitosa Nechio.

Banks, Nonbanks, and Business Cycles

European Economic Review

V 154, 01/05/2023

European macroeconomic and financial aggregates move in lockstep over the business cycle. We develop a model in which a single risk premium shock triggers these comovements. The key feature is a financial sector where traditional banks transfer part of their risky loan portfolio to nonbank institutions. We fit the model to euro area data and find that risk premium shocks are the main driver of business and financial cycles over the past two decades.

Yvan Bécard, David Gauthier.

Multi-product Pricing: Theory and Evidence From Large Retailers

Economic Journal

V 133, P 905–927, 22/04/2023

We study a unique dataset with comprehensive coverage of daily prices in large multiproduct retailers in Israel. Retail stores synchronize price changes around occasional “peak” days when they reprice around 10% of their products. To assess aggregate implications of partial price synchronization, we develop a new model in which multiproduct firms face economies of scope in price adjustment, and synchronization is endogenous. Synchronization of price changes attenuates the average price response to monetary shocks, but only high degrees of synchronization can substantially strengthen the real effects of monetary policy shocks. Our calibrated model generates real effects similar in magnitude to those in Golosov and Lucas (2007).

Marco Bonomo, Carlos Viana de Carvalho, Oleksiy Kryvtsov, Sigal Ribon, Rodolfo Dinis Rigato.

DETER-ing Deforestation in the Brazilian Amazon: Environmental Monitoring and Law Enforcement

American Economic Journal: Applied Economics

V 15, P 125-156, 29/03/2023

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.

Affirmative Action and the Choice of Schools

Journal of Public Economics

V 219, 23/01/2023

Race-neutral affirmative action in higher education has gained importance following the controversies over their race-based alternatives. In many settings, these interventions use a school-based criterion that selects beneficiaries relative to their peers. Exploiting a nationwide quota policy in Brazil that reserved a large share of vacancies in higher education for publicschool students, I show that the reform increases the private-to-public school transitions, especially among students of low-performing private schools. In addition to a direct decrease in returns of the private-school investment, spillovers on indirectly exposed cohorts and general equilibrium effects in the school system might also explain the results

Ursula Mello.

Anchored Inflation Expectations

American Economic Journal: Macroeconomics

V 15, P 1-47, 02/01/2023

We develop a theory of low-frequency movements in inflation expectations, and use it to interpret joint dynamics of inflation and inflation expectations for the United States and other countries over the post-war period. In our theory long-run inflation expectations are endogenous. They are driven by short-run inflation surprises, in a way that depends on recent forecasting performance and monetary policy. This distinguishes our theory from common explanations of low-frequency properties of inflation. The model, estimated using only inflation and short-term forecasts from professional surveys, accurately predicts observed measures of long-term inflation expectations and identifies episodes of unanchored expectations.

Carlos Viana de Carvalho, Stefano Eusepi, Emanuel Moench, Bruce Preston.

From Zero to Hero: Realized Partial (Co)Variances

Journal of Econometrics

V 231, P 348-360, 01/12/2022

This paper proposes a generalization of the class of realized semivariance and semicovariance measures introduced by Barndorff-Nielsen et al. (2010) and Bollerslev et al. (2020a) to allow for a finer decomposition of realized (co)variances. The new “realized partial (co)variances” allow for multiple thresholds with various locations, rather than the single fixed threshold of zero used in semi (co)variances. We adopt methods from machine learning to choose the thresholds to maximize the out-of-sample forecast performance of time series models based on realized partial (co)variances. We find that in low dimensional settings it is hard, but not impossible, to improve upon the simple fixed threshold of zero. In large dimensions, however, the zero threshold embedded in realized semi covariances emerges as a robust choice.

Tim Bollerslev, Marcelo Medeiros, Andrew J. Patton, Rogier Quaedvlieg.

Money and Politics: The Effects of Campaign Spending Limits on Political Entry and Competition

American Economic Journal: Applied Economics

V 14, P 167-199, 28/09/2022

This paper studies the effects of campaign spending limits on the political entry, selection, and behavior of local politicians in Brazil. We analyze a reform that limits campaign spending for mayoral elections. The limits were implemented with a discontinuity that we exploit for causal identification. We find that stricter limits reduce reelection rates and increase political competition by attracting more candidates who are also less wealthy and rely less on self-financing. Despite their effects on electoral outcomes, stricter limits did not lead to significant short-run improvements in policy outcomes, such as in education and health.

Eric Avis, Claudio Ferraz, Frederico Finan, Carlos Eduardo Sant´Anna Varjão.

Selecting Top Bureaucrats: Admission Exams and Performance in Brazil

Review of Economics and Statistics


In the absence of strong incentives, public service delivery crucially depends on bureaucrat selection. Despite wide adoption by governments, it is unclear whether civil service examinations reliably select for job performance. We investigate this question focusing on state judges in Brazil. Exploring monthly data on judicial output and cross-court movement, we estimate that judges account for at least 23% of the observed variation in number of cases disposed. With novel data on admission examinations, we show that judges with higher grades perform better than lower-ranked peers. Our results suggest competitive examinations can be an effective way to screen candidates.

Ricardo Dahis, Laura de Carvalho Schiavon, Thiago de Gouvêa Scot de Arruda.

Jumps in Stock Prices: New Insights from Old Data

Journal of Financial Markets

V 60, 19/08/2022

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.

Centralized Admissions, Affirmative Action, and Access of Low-Income Students to Higher Education

American Economic Journal: Economic Policy

V 14, 01/08/2022

I analyze how two reforms, introduced to expand college access in Brazil, impacted enrollments of low-SES students. The first policy centralized applications in a nationwide platform (SISU), and the second expanded affirmative action quotas (AA) to a uniform share of 50 percent of vacancies offered by degree. Results show that SISU changes enrollment decisions of high-SES students, crowding out low-SES groups from the least competitive degrees disproportionately. In contrast, AA increases enrollments of low-SES individuals not only mechanically but also through behavioral responses. Finally, their interaction creates a complementary effect, protecting the low-SES groups from the crowding-out of centralization

Ursula Mello.

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.

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