Working Paper Series

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.

América Latina: o contexto externo, 1928-1982

N 660, 24/11/2017

Marcelo de Paiva Abreu.

Negócios britânicos no Brasil: da maturidade à irrelevância, 1850-1950

N 659, 23/11/2017

Este artigo considera as tendências de longo prazo das relações econômicas e financeiras britânicas com o Brasil desde 1850. Abrange investimentos e outas manifestações da presença britânica no Brasil, tais como as relacionadas a comércio e  intermediação financeira. O interesse fundamental é no envolvimento britânico com as atividades do setor privado no Brasil, seja através de investimento direto, seja  na intermediação financeira em benefício de firmas privadas que operavam no Brasil. O artigo também menciona o papel de Londres como centro financeiro no qual eram lançados empréstimos públicos brasileiros, a relevância do Reino Unido como mercado para as exportações brasileiras e como supridor de importações para o Brasil, e  a intermediação britânica no comércio brasileiro com terceiros países.  O artigo é dividido em seções cronológicas: os anos imperiais (1850- 1889); estagnação e boom (1889-1914); primeiros sinais de declínio (1914-1930); os anos de redução de  investimentos (1930-meados da década de 1950). A seção final apresenta as conclusões e menciona as tendências pós-1950.

Marcelo de Paiva Abreu.

Transitions in Central Bank Leadership

N 657, 06/07/2017

We assemble a novel dataset on transitions in central bank leadership in several countries, and study how monetary policy is conducted around those events. We find that policy is tighter both at the last meetings of departing governors and first meetings of incoming leaders. This finding cannot be fully explained by endogenous transitions, the effects of the zero lower bound, surges in inflation expectations, omitted variables such as fiscal policy and uncertainty nor electoral cycles. We conclude by offering two possible, perhaps complementary, explanations for these results. One based on a simple signalling story, another based on career and reputation concerns.

Carlos Viana de Carvalho, Tiago Tavares Flórido, Eduardo Zilberman.

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

N 656, 08/06/2017

This paper examines the effects of campaign spending limits on political competition and

incumbency advantage. We study a reform in Brazil that imposed limits on campaign spending

for mayoral elections. These limits were implemented with a discontinuous kink which we

exploit for causal identification. We find that stricter limits increase political competition by

creating a larger pool of candidates that is on average less wealthy. Moreover, we find that

stricter spending limits reduce the incumbency advantage, causing mayors to be less likely

to be reelected. These findings are consistent with a contest model with spending caps and

endogenous candidate entry

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

Sentiment, Electoral Uncertainty and Stock Returns

N 655, 08/03/2017

We study the effect of a huge sports sentiment shock, unrelated to economic conditions or government actions, on stock market outcomes. After Brazil's 7-1 humiliating defeat to Germany in the 2014 World Cup, which is likely to be one of the largest sports sentiment shocks ever, the stock market went up. We provide evidence of two opposing effects on stock prices. One is the usual negative effect due to the investor sentiment channel documented in the literature. This effect was, however, overwhelmed by the arguably rational response of investors to voters' sentiment. In particular, the 7-1 defeat was perceived by stock market participants as a political shock affecting the upcoming close presidential election. To decompose these two effects, we devise an empirical strategy that allows us to compute the component of daily returns associated with political news. 

 Atualizado em agosto/2017


Carlos Viana de Carvalho, Eduardo Zilberman, Ruy Monteiro Ribeiro.

The Perils of Counterfactual Analysis with Integrated Processes

N 654, 27/12/2016

Recently, there has been a growing interest in developing econometric tools to conduct counterfactual analysis with aggregate data when a "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 arti cial counterfactual from a pool of "untreated" peers, organized in a panel data structure. In this paper, we investigate the consequences of applying such methodologies when the data are formed by integrated process of order 1. We find that without a cointegration relation (spurious case) the intervention estimator diverges resulting in the rejection of the hypothesis of no intervention effect regardless of its existence. Whereas, for the case when at least one cointegration relation exists, we have a √T-consistent estimator for the intervention effect albeit with a non-standard distribution. However, even in this case, the test of no intervention effect is extremely oversized if nonstationarity is ignored. When a drift is present in the data generating processes, the estimator for both cases (cointegrated and spurious) either diverges or is not well de ned asymptotically. As a fi nal recommendation we suggest to work in first-differences to avoid spurious results.

Carlos Viana de Carvalho, Marcelo Medeiros, Ricardo Pereira Masini.

Measuring the Effect of the Zero Lower Bound on Monetary Policy

N 649, 03/12/2016

The Zero Lower Bound (ZLB) on interest rates is often regarded as an important constraint on monetary policy. To assess how the ZLB affected the Fed's ability to conduct policy, we estimate the effects of Fed communication on yields of different maturities in the pre-ZLB and ZLB periods. Before the ZLB period, communication affects both shortand long-dated yields. In contrast, during the ZLB period, the reaction of yields to communication is concentrated in longer-dated yields. Our ndings support the view that the ZLB did not put such a critical constraint on monetary policy, as the Fed retained some ability to affect long-term yields through communication.

Eric Hsu, Carlos Viana de Carvalho, Fernanda Feitosa Nechio.

ARCO: An Artificial Counterfactual Approach from High-Dimensional Panel Time-Series Data

N 653, 16/08/2016

We consider a new method to estimate causal effects when a treated unit suffers a shock or an intervention, such as a policy change, but there is not a readily available control group or counterfactual. We propose a two-step approach where in the first stage an artificial counterfactual is estimated from a large-dimensional set of variables from pool of untreated units (“donors pool”) using shrinkage methods, such as the Least Absolute Shrinkage Operator (LASSO). In the second stage, we estimate the average intervention effect on a vector of variables belonging to the treated unit, which is consistent and asymptotically normal. Our results are valid uniformly over a wide class of probability laws. Furthermore, we show that these results still hold when the date of the intervention is unknown and must be estimated from the data. Tests for multiple interventions and for contamination effects are also derived. By a simple transformation of the variables of interest, it is also possible to test for intervention effects on several moments (such as the mean or the variance) of the variables of interest. Finally, we can disentangle the actual intervention effects from confounding factors that usually bias “before-and-after” estimators. A detailed Monte Carlo experiment evaluates the properties of the method in finite samples and compares our proposal with other alternatives such as the differences-in-differences, factor models and the synthetic control method. An empirical application to evaluate the effects on inflation of a new anti tax evasion program in Brazil is considered. Our methodology is inspired by different branches of the literature such as: the Synthetic Control method, the Global Vector Autoregressive models, the econometrics of structural breaks, and the counterfactual analysis based on macro-econometric and panel data models.

Carlos Viana de Carvalho, Marcelo Medeiros, Ricardo Pereira Masini.

Do Government Audits Reduce Corruption? Estimating the Impacts of Exposing Corrupt Politicians

N 652, 15/07/2016

Political corruption is considered a major impediment to economic development, and yet it remains pervasive throughout the world. This paper examines the extent to which government audits of public resources can reduce corruption by enhancing political and judiciary accountability. We do so in the context of Brazil’s anti-corruption program, which randomly audits municipalities for their use of federal funds. We find that being audited in the past reduces future corruption by 8 percent, while also increasing the likelihood of experiencing a subsequent legal action by 20 percent. We interpret these reduced-form findings through a political agency model, which we structurally estimate. Based on our estimated model, the reduction in corruption comes mostly from the audits increasing the perceived threat of the non-electoral costs of engaging in corruption.

Frederico Finan, Eric Avis, Claudio Ferraz.

Is there an Output Free Lunch for Fiscal Inflationary Policies?

N 650, 29/04/2016

Expansionary fiscal policies have been advocated to induce output expansions and inflation in deep recession or deflationary episodes. We show that, in a fi scalist setup, an increase in defi cits can trigger a stagflation by negatively affecting financial intermediation of resources to investments. Financial intermediaries collect deposits to buy government bonds and lend through nominal long-term loans. When intermediaries face financial frictions and a maturity mismatch on their assets and liabilities, a surprise inflation and/or a revaluation of bonds prices impair their net-worth reducing lending, investments, and output. Recession comes with inflation in a fi scal expansion because the fall on capital triggered on the fi nancial sector rises production firms marginal costs. The probability of a recession is higher the greater is the maturity mismatch, the sensitivity of bonds prices to the policy rate, and the share of bonds on banks balances. These results: (1) give theoretical support for the negative relation documented between financial sector performance and inflation (2) help explaining high debt, highflination environments coinciding with banking crisis and, more importantly, (3) expose drawbacks of fiscal inflation policies proposed to inflate and stimulate low inflation economies, where the setup stressed in this paper is more probable to be present.

Moises Shalimay de Souza Andrade, Tiago Couto Berriel.

Factor Specificity and Real Rigidities

N 633, 23/03/2016

We develop a multisector model in which capital and labor are free to move across firms within each sector, but cannot move across sectors. To isolate the role of sectoral specificity, we compare our model with otherwise identical multisector economies with either economy-wide or firm-specific factor markets. Sectoral factor specificity generates within-sector strategic substitutability and tends to induce across-sector strategic complementarity in price setting. Our model can produce either more or less monetary non-neutrality than those other two models, depending on parameterization and the distribution of price rigidity across sectors. Under the empirical distribution for the U.S., our model behaves similarly to an economy with firm-specific factors in the short-run, and later on approaches the dynamics of the model with economy-wide factor markets. This is consistent with the idea that factor price equalization might take place gradually over time, so that firm-specificity may serve as a reasonable short-run approximation, whereas economy-wide markets are likely a better description of how factors of production are allocated in the longer run

Carlos Viana de Carvalho, Fernanda Feitosa Nechio.

Demographics and Real Interest Rates: Inspecting the Mechanism

N 648, 16/03/2016

The demographic transition can affect the equilibrium real interest rate through three channels. An increase in longevity - or expectations thereof - puts downward pressure on the real interest rate, as agents build up their savings in anticipation of a longer retirement period. A reduction in the population growth rate has two counteracting effects. On the one hand, capital per-worker rises, thus inducing lower real interest rates through a reduction in the marginal product of capital. On the other hand, the decline in population growth eventually leads to a higher dependency ratio (the fraction of retirees to workers). Because retirees save less than workers, this compositional effect lowers the aggregate savings rate and pushes real rates up. We calibrate a tractable life-cycle model to capture salient features of the demographic transition in developed economies, and nd that its overall effect is a reduction of the equilibrium interest rate by at least one and a half percentage points between 1990 and 2014. Demographic trends have important implications for the conduct of monetary policy, especially in light of the zero lower bound on nominal interest rates. Other policies can offset the negative e ects of the demographic transition on real rates with different degrees of success.

Carlos Viana de Carvalho.

Juros e Câmbio no Brasil: Avanços e Desafios

N 646, 09/12/2015

Analiso a evolução das taxas de juros e câmbio desde o Plano Real. O objetivo é mostrar como a inter-relação entre essas duas variáveis macroeconômicas evoluiu ao longo das últimas duas décadas, gerando a atual configuração de custo de capital para as empresas brasileiras. O capítulo finaliza com uma agenda de tarefas a serem cumpridas para permitir reduzir o custo de capital, assim estimulando o investimento e aumentando o crescimento econômico.

Márcio Gomes Pinto Garcia.

E se o Brasil não tivesse adotado câmbio flutuante em 1999?

N 645, 24/11/2015

Estimamos um modelo dinâmico, estocástico, de equilíbrio geral para a economia brasileira, levando em conta explicitamente a transição do sistema de bandas cambiais para o regime de metas para a inflação com câmbio flutuante, ocorrida em 1999. O modelo estimado produz dinâmicas bastante distintas sob os dois regimes monetários. Construímos, então, algumas histórias contrafactuais da transição entres os dois regimes, utilizando as séries de choques estruturais estimados. Nossos resultados sugerem que a manutenção das bandas cambiais teria sido praticamente inviável, na medida em que a taxa de juros teria que ter permanecido em níveis extremamente elevados por vários trimestres e a atividade econômica teria contraído fortemente. Acelerar o ritmo de desvalorização da taxa de câmbio após a Crise da Ásia teria produzido taxas de inflação e de juros maiores e atividade econômica um pouco mais fraca. Por último, o modelo sugere que o primeiro semestre de 1998 pode ter oferecido uma janela de oportunidade para uma transição suave entre os dois regimes monetários.

Carlos Viana de Carvalho, André Dornfeld Vilela .

Long Term Debt and Credit Crisis in a Liquidity Constrained Economy

N 644, 22/10/2015

This paper explores the interaction between a credit crunch and the maturity

of government debt, focusing on its impacts on an economy with heterogeneous

households. We nd that an increase in debt maturity helps softening the economic

slump that follows a credit crisis. We show that, immediately after the credit shock,

there is an output drop of nearly 1% when the asset available has on average one

quarter of maturity, while a contraction of only 0.6% follows when debt duration

has three quarters. The rise of asset duration indirectly enhances the income eects

unleashed by general equilibrium price dynamics, which benets bondholders and

thus softens the recession. On the other hand, an increase on debt duration impairs

the improvement of wealth distribution on the long run. The main contribution

this paper paper is to show that debt maturity is a key element to understand the

magnitude of a recession driven by credit and its welfare consequences.

Rodrigo Abreu, Tiago Couto Berriel.

Selection and Monetary Non-Neutrality in Time-Dependent Pricing Models

N 627, 30/08/2015

For a given frequency of price changes, the real effects of a monetary shock are smaller if adjusting forms are disproportionately likely to have last set their prices before the shock. This type of selection for the age of prices provides a complete characterization of the nature of pricing frictions in time-dependent sticky-price models. In particular: 1) The Taylor (1979) model exhibits maximal selection for older prices, whereas the Calvo (1983) model exhibits no selection, so that real effects are smaller in the former than in the latter; 2) Selection is weaker and real effects of monetary shocks are larger if the hazard function of price adjustment is less strongly increasing; 3) Selection is weaker and real effects are larger if there is sectoral heterogeneity in price stickiness; 4)  election is weaker and real effects are larger if the durations of price spells are more variable.

Carlos Viana de Carvalho, Felipe Schwartzman.

India as a creditor: sterling balances, 1940-1953

N 643, 20/08/2015

The British war effort in the Second World War depended on United States Lend Lease and the accumulation of sterling balances by neutrals, some of which would become belligerents and by the Empire. In the end of the war sterling balances corresponded to 60% of British net receipts under Lend Lease and were 15% higher than total Marshall Plan grants in 1948-52. Of the total sterling balances, about 40% were accumulated by India. This paper seeks to evaluate the costs incurred by India in the process of reduction of these balances after the war. The sources of accumulation of balances are examined and the use of the balances to repatriate India´s sterling debt is described. The issue of a British counterclaim entailing a partial cancellation of Indian balances is considered. British efforts to convince India to accept a partial cancellation of the balances are analyzed singling out the crucial role of Keynes in defining British policy The Anglo-Indian sterling balance negotiations after independence are detailed, including the disposal of balances through releases, transfer of assets to Pakistan, settlement of pensions, purchase of military stores and British gold sales. The possible contribution of British divestment to reduce outstanding balances is assessed, The Indian case is compared with those of other sterling balance holders such as Portugal, Brazil and Argentina. The links between the accumulation of sterling balances and inflation in India are considered. In the end there was a significant reduction in the purchasing power of sterling balances but not for the reasons anticipated by London

Marcelo de Paiva Abreu.

Monetary Policy and Real Exchange Rate Dynamics in Sticky-Price Models

N 628, 12/08/2015

We study how real exchange rate dynamics are a¤ected by monetary policy in dynamic, stochastic, general equilibrium, sticky-price models. Our analytical and quantitative results show that the source of interest rate persistence - policy inertia or persistent policy shocks - is key. When the monetary policy rule has a strong interest rate smoothing component, these models fail to generate high real exchange rate persistence in response to monetary shocks, as policy inertia hampers their ability to generate a hump-shaped response to such shocks. Moreover, in the presence of persistent monetary shocks, increasing policy inertia may decrease real exchange rate persistence.

Carlos Viana de Carvalho, Fernanda Feitosa Nechio.

Robust Mechanisms: the curvature case

N 642, 13/07/2015

This note considers the problem of a principal (she) who faces a privately informed

agent (he) and only knows one moment of the distribution from which his types are drawn.

Payoffs are non-linear in the allocation and the principal maximizes her worst-case expected

profits. We recast the robust design problem as a zero-sum game played by the principal and

an adversarial nature who seeks to minimize her expected payoffs. The robust mechanism

and the worst case distribution are, then, the Nash equilibrium of such game. A robustness

property of the optimal mechanism imposes restrictions on the principal’s ex-post profit

function. These restrictions then lead to the optimal mechanism. The robust mechanism

entails exclusion of low types and distortions at the intensive margin that (in a precise sense)

are larger than what those that prevail in standard Bayesian mechanism design problems

Paulo Monteiro, Vitor Farinha Luz, Vinicius Nascimento Carrasco, Humberto Moreira.

Search here