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08:30-10:15 Session 19A: Macro 7
Location: Capri 4
Bank runs with wary depositors
SPEAKER: Diego M Silva

ABSTRACT. We re-evaluate the Diamond and Dybvig(1983) model with agents looking at the bank run equilibrium. Wary depositor places great emphasis on the lower possible payment. We find that they are less likely to run once the worst second-date payment is higher than the worst first-date payment in a sequential service mechanism. We also see that an extreme environment with high level of wariness implies a truncated economy which all depositors receive the initial deposit back until the first patient depositor shows up. In such a situation without disclosure about the position, we find one single equilibrium which no one runs. If the agent knows their position, he waits to consume at t=2 when he is the first patient type to show up.

Liquidity Mismatch or Bubbly Mismatch?

ABSTRACT. Traditional macroeconomic theory supports the role of banks in the supply of liquid debt. The transformation of illiquid assets into liquid liabilities is considered beneficial to the economy even if it is associated with the risk of bank runs. The first goal of this paper is to show from a theoretical point of view how a mismatch between assets and liquid debt can also derive from the emergence of a bubble on bank debt. In this case, there is no beneficial liquidity transformation and the bank is earning a rent. Then, I provide a simple test to distinguish between a “liquidity” and a “bubbly” mismatch. I show that in the first scenario an increasing mismatch should imply a reduction in the dividend payout, while in the second scenario the correlation should be positive. I test my predictions on balance sheet data for American Bank Holding Companies from 1986 to 2015. My results reveal a shift starting in the beginning of the 2000's. In the years preceding the financial crisis the increasing mismatch between assets and liquid debt (in particular, non-traditional short term debt) was not associated with a reduction in dividends.

Inflation Targeting under Fiscal Fragility
SPEAKER: Rafael Santos

ABSTRACT. An indebted policymaker with a narrow budget, eventually, must decide between: (i) to have inflation on the announced target at an additional fiscal cost; or (ii) to accept higher inflation. To address this dilemma, we model the intertemporal trade-off between fiscal and monetary policy when fully flexible prices and forward-looking rational expectations are at place. We show that might be optimal to gradually reduce the public debt down to a level where the inflation target delivery is fully believed. However, a hastened low target adoption, i.e. before the fiscal adjustment being concluded, may increase the total cost of the fiscal adjustment and, hence, may prevent the government's deleveraging process. Without deleveraging, to miss the target is a matter of time. Our model suggests that two out of the three Brazilian inflation target-failures resulted from fiscal limits on target achievement.

Indexação e Metas de Inflação

ABSTRACT. Realiza-se neste artigo uma investigação teórica de como a existência de indexação impacta o funcionamento do sistema de metas de inflação. Para tanto, utiliza-se um jogo repetido construído a partir da incorporação da indexação e do regime de metas no modelo de Kydland e Prescott e Barro e Gordon. Mostra-se que, ao contrário da visão tradicional sobre a questão, a indexação contribui para a implementação da meta estabelecida para a taxa de inflação. Essa conclusão levanta a possibilidade de que uma eventual redução do grau de indexação da economia brasileira pode inviabilizar o funcionamento do sistema de metas.

08:30-10:00 Session 19B: Theory 2
Location: Capri 5
Lipschitz Recursive Equilibrium with a Minimal State Space for Growth Models with Heterogeneity

ABSTRACT. This paper analyzes a growth model with heterogeneous agents and production. We show the existence of a minimal state space Lipschitz continuous recursive equilibrium using Montrucchio (JME 1987). The recursive equilibrium implements a sequential equilibrium through an explicit functional equation derived from the Bellman Equation. We do not assume existence of a technology that transforms capital goods into consumption goods in a one to one ratio. Therefore, the exchange rate between capital and consumption good is endogenously given and the model embodies two production sectors. The model also includes the possibility of decreasing returns of scale and positive profits.

On the Variational Approach to the Analysis of Tax Systems: A Cautionary Tale

ABSTRACT. We study optimal income taxation in a class of static, one-dimensional Mirleesian economies where preferences do not satisfy the Spence-Mirrlees condition (SMC). We characterize necessary conditions for the optimal taxation using a structural mechanism design approach based on type assignment functions. Because the SMC is violated, local incentive constraints no longer suffice for implementability, and an additional set of global incentive constraints must be explicitly taken into account. When these global constraints bind, they create a tension between infra-marginal types whose ICs are not handled by any local approach. Local perturbations (or small reforms) of the optimal tax schedule may have global (First-order) impacts on welfare, thus invalidating some of the assumptions underlying local variational methods.

Crime, Broken Families, and Punishment

ABSTRACT. We develop a two-period overlapping generations model in which both the structure of the family and the decision to commit crime are endogenous and a culture of honesty is transmitted intergenerationally by families and peers. Having a father at home might be crucial to prevent susceptible boys from becoming criminals, as this facilitates the transmission of the honesty trait against criminal behavior. By "destroying" biparental families and putting fathers in prison, we show that more intense crime repression can backfire because it increases the possibility that criminals' sons become criminals themselves. Consistent with sociological disorganization theories of crime, the model also explains the emergence and persistence of urban ghettos characterized by a large proportion of broken families and high crime rates. This is because for children who come from these broken families, negative community experiences (peer effects) further encourage their criminal participation. Finally, we discuss the effciency of location and family policies on long-term crime rates.

08:30-10:00 Session 19C: Finance 4
Location: Capri 3
Comparação do desempenho de medidas realizadas para previsão de volatilidade de ações da B3
SPEAKER: Tainan Boff

ABSTRACT. Este trabalho explora diferentes estimadores da volatilidade obtidos de dados intradiários e denominados de "medidas realizadas'' para fazer previsão da volatilidade diária dos preços de ações negociadas na B3 com base em dados de alta frequência. O objetivo principal é fornecer orientação para a escolha da medida realizada e da frequência amostral a ser utilizada tanto em aplicações na área de econometria financeira quanto em aplicações práticas pelos participantes do mercado de ações brasileiro. A hipótese básica é a de que a variância realizada combinada com uma frequência amostral de 5 minutos é a opção mais adequada. Inicialmente, é feito o tratamento dos dados para a obtenção de séries homogêneas de retornos, em seguida, são calculadas 7 classes de medidas realizadas em 8 frequências amostrais. Essas estimativas são combinadas ao modelo preditivo HAR-RV e a comparação das previsões é realizada através do procedimento Model Confidence Set. Os resultados sugerem que a variância realizada de 5 minutos é superada por estimadores mais sofisticados, em especial o estimador em duas escalas de tempo e suas versões com correção de viés e robusta a saltos. Além disso, a escolha da frequência amostral parece ter um papel importante no desempenho preditivo, mas ela varia para cada ação. Em geral, frequências entre 10 e 15 minutos geraram boas previsões para ações de menor liquidez.

Forecasting Large Stochastic Covariance Matrices

ABSTRACT. Modeling and forecasting high dimensional covariance matrices is a key challenge in data-rich environments. Most of the available multivariate stochastic volatility (MSV) models suffer from the curse of dimensionality as the number of parameters often increases exponentially as the cross-section dimension grows, which brings difficulties for practical applications involving hundreds or thousands of time series. We tackle this problem by considering a MSV specification that is particularly suitable for very high dimensional applications. Dynamic covariance matrices are treated as Wishart processes, respecting positive definiteness, and their parameterization does not increase with the number of time series analyzed. In particular, the MSV model considered in the paper is able to model and forecast time-varying conditional covariance matrices by estimating only one single parameter. A large scale portfolio selection exercise with up to 1000 assets over a 30-year time span reveals that the MSV model delivers more stable optimal compositions and outperform on an out-of-sample basis a number of alternative benchmarks in terms of risk-adjusted returns even in when using moderate levels of transaction costs.

Implied volatility term structure and exchange rate predictability

ABSTRACT. This paper provides empirical evidence on the predictive power of currency implied volatility term structure (IVTS) on exchange rates behavior from both cross-section and time-series perspectives. Intriguingly, the direction of the prediction is not the same for developed and emerging markets. For developed markets, a high slope means low future returns, while for emerging markets this means high future returns. In order to analyze predictability from a cross-section perspective, we build portfolios based on the slope of the term structure, and thus we present a new currency strategy. For developed (emerging) currencies, we buy (sell) the two currencies with the lowest slopes and sell (buy) those two with the highest slopes. The proposed strategy performs better than common currency strategies - carry trade, risk reversal and VRP - based on the Sharpe ratio, considering only currency returns, which supports the exchange rate predictability of the IVTS from a cross-section perspective.

08:30-10:15 Session 19D: Econometrics 2
Location: Capri 4
DSGE Estimation using Generalized Empirical Likelihood and Generalized Minimum Contrast

ABSTRACT. The objective of this work is to investigate the performance of moment-based estimators of the generalized empirical likelihood (GEL) and generalized minimum contrast (GMC) families in the estimation of dynamic stochastic general equilibrium (DSGE) models, focusing on the robustness analysis under misspecification, recurrent in this model. As benchmark we used generalized method of moments (GMM), maximum likelihood (ML) and Bayesian inference (BI). We work with a real business cycle (RBC) model that can be considered the core of DSGE models, presents similar difficulties and, in addition, it is easy to analyze the results due to low number of parameters. We verified, via Monte Carlo experiments, whether the studied estimators presented satisfactory results in terms of mean, median, bias, mean square error, mean absolute error and we verified the distribution of the estimates generated by each estimator. Among the main results are: (i) empirical likelihood (EL) estimator -- as well as its version with smoothed moment conditions (SEL) -- and Bayesian inference (BI) were, in that order, the ones that obtained the best performances, even in misspecification cases; (ii) continuous updating empirical likelihood (CUE), minimum Hellinger distance (HD), exponential tilting (ET) estimators and their smoothed versions exhibit intermediate comparative performance; (iii) performance of exponentially tilted empirical likelihood (ETEL), exponential tilting Hellinger distance (ETHD) and its smoothed versions was seriously compromised by atypical estimates; (iv) smoothed and non-smoothed GEL/GMC estimators exhibit very similar performances; (v) GMM estimator, especially in the over-identified case, and ML estimator had lower performance than their competitors.

Common Values, Unobserved Heterogeneity, and Endogenous Entry in U.S. Offshore Oil Lease Auctions

ABSTRACT. An oil lease auction is the classic example motivating a common values model. However, formal testing for common values has been hindered by unobserved auction-level heterogeneity, which is likely to affect both participation in an auction and bidders' willingness to pay. We develop and apply an empirical approach for first-price sealed bid auctions with affiliated values, unobserved heterogeneity, and endogenous bidder entry. The approach also accommodates spatial dependence and sample selection. Following Haile, Hong and Shum (2003), we specify a reduced form for bidder entry outcomes and rely on an instrument for entry. However, we relax their control function requirements and demonstrate that our specification is generated by a fully specified game motivated by our application. We show that important features of the model are nonparametrically identified and propose a semiparametric estimation approach designed to scale well to the moderate sample sizes typically encountered in practice. Our empirical results show that common values, affiliated private information, and unobserved heterogeneity - three distinct phenomena with different implications for policy and empirical work - are all present and important in U.S. offshore oil and gas lease auctions. We find that ignoring unobserved heterogeneity in the empirical model obscures the presence of common values. We also examine the interaction between affiliation, the winner's curse, and the number of bidders in determining the aggressiveness of bidding and seller revenue.

Markov Switching Gas Copula model

ABSTRACT. Dependence modelling and its applications to risk management have recently gained much ground as a field of research in empirical finance. In this paper we propose a new approach for capturing dependence regime switching via copulas, and show through numerical Monte Carlo simulation exercises that our approach is quite robust to model mispecification. Furthermore we employ our model in the analysis of European financial data, specifically the European market indexes FTSE100(UK), DAX(GER), CAC40(FRA) and BEL20(BEL). We show that there is evidence of a significant change in early 2016, when there is a diminished lower tail dependence which could be associated with the BREXIT referendum.

(Continuous) GMM Quantile Regression

ABSTRACT. This paper develops continuous generalized method of moments estimation and inference procedures for quantile regression models when allowing for general parametric restrictions on the parameters of interest over a set of quantiles. First, we suggest a GMM estimator based on a partition of the quantile space for estimation of multiple quantiles simultaneously considering a fixed number of quantile partitions. Second, we study the properties of the GMM when the number of partitions diverge to infinity, and derive the efficiency bound for the GMM estimator. Second, we suggest new GMM estimation procedure for a large number of partitions. We establish the asymptotic properties of both GMM estimators. Monte Carlo simulations show numerical evidence of the finite sample properties of the methods. The methods have the advantage of being simple to implement in practice.

10:30-12:00 Session 20A: Macro 8
Location: Capri 6
The impact of the international commodity market on the Brazilian economy: an analysis using global-VAR (GVAR)

ABSTRACT. This paper studies the influences of the prices of agricultural and mineral commodities on the Brazilian economy through shocks in commodities price and their impacts on GDP, exports, exchange rate and stock index. With this objective, a GVAR model composed of 57 countries was build. We found that price shocks in mineral and agricultural commodities affect GDP and exports, while for exchange rate and stock index the price shocks produce inconsistent results. Positive price shocks for both commodities generate growth in the short term with decline in the long term for GDP and exports. Negative price shocks generate converse behavior. The price shocks from agricultural commodities have more impact than mineral commodities in the Brazilian economy. As aditional result we show that the Chinese GDP has a bigger impact on international commodity prices in relation to all other countries in the study. Brazilian GDP has no impact in the international prices of the commodities considered in the study.

Financial openness, economic globalization and its effects on monetary policy efficiency and macroeconomic stability

ABSTRACT. This study relates to the literature that analyzes the monetary policy efficiency and macroeconomic stability. We provide indicators for monetary policy inefficiency and macroeconomic instability by the use of efficiency frontier approach to measure the performance of the monetary authority. In particular, we analyze the impact of an increase in financial openness and economic globalization on monetary policy inefficiency and macroeconomic instability. Based on a panel data analysis regarding forty-two countries from 1990 to 2014 (annual data) we performed several regressions for different specifications and methods. The findings denote that both financial openness and economic globalization are important to improve the efficiency of monetary policy and macroeconomic stability. Furthermore, we observe that countries with inflation targeting, higher level of development, low risk of political pressures (such as socioeconomic pressures and democratic accountability), as well as the absence of international financial crisis, have a better performance in terms of monetary policy efficiency and macroeconomic stability.

The Role of Global Activity, Uncertainty and Commodity Price in the Determination of Emerging Countries' Business Cycle

ABSTRACT. We evaluate the role played by international shocks in the determination of the macroeconomy of four commodity exporters Latin American countries: Brazil, Chile, Colombia and Peru. A more complete modelling of the linkages between international macroeconomic variables allowed us to reach results that oppose previous findings. Specifically, we verify that aggregate shocks to the world commodity market are not as relevant to account for these countries' business cycle. Aggregate commodity price index reacts endogenously to other global shocks, playing a major role as a transmitter. We verify, however, that its relevance increases when a less complete structure of the international economy is in place, which seems to have influenced previous findings. Our analytic framework is based on bayesian structural VAR with block exogeneity. The complete international economy considers the global GDP, an aggregate commodity price index, and the volatility index VIX. The presence of this last variable, which can capture uncertainty arising in the international financial market, changes established results.

10:30-12:00 Session 20B: Health and Human Capital Formation
Location: Capri 3
Human capital formation from gestation to age 18: evidence from Brazil

ABSTRACT. In this article we estimate a production function of child abilities from birth to age 11 and relate these abilities to human capital in early adulthood using the Pelotas 1993 birth cohort study. We find that abilities at birth are produced mainly by gestational investments and maternal health. We find cross productivity between abilities at birth and health and external socio-emotional abilities at age 11. Finally, human capital at age 18 is formed by external socio-emotional skills and health. All of our production functions exhibit complementarity between its inputs. Further we explore exogenous shifts in real value of the national minimum wage during gestation to estimate the effects of income changes during gestation on the child's life-cycle. We find that an increase of one standard deviation in the national minimum wage significantly increases gestational investments and abilities at birth. The effects continue onto health and external socio-emotional abilities as well human capital at age 18, although these are small. The effects are more pronounced for families in the lowest income deciles

Condições Iniciais e Resultados Educacionais Futuros: Os efeitos da Malária na Amazônia Brasileira

ABSTRACT. The aim of this study is to evaluate the long-term effects of malaria on human capital accumulation in Brazil, as measured by the proficiency in Portuguese and Mathematics of the 5th grade students of Elementary School. Our database comes from Prova Brasil (Inep) for the years 2007 and 2011 and from Sismal (Sistema de Informação do Programa Nacional de Controle da Malária). The incidence of malaria in the country is almost exclusive to Brazilian Amazon region due to the specific climatic and geographic characteristics, although the disease transmitter is present in 80% of the territory. The differences-in-differences estimator is applied to explore the almost exogenous variation of the risk of malaria in space and time between the cohorts located in municipalities where there was a change in malaria risk classification between the years of application of the tests. The Annual Parasitic Index measures the risk for malaria. The indicator allows analyzing population, geographic and temporal variations in the distribution of malaria cases. The hypothesis behind our empirical strategy is that being born in an area of high or medium risk of malaria implies an imminent exposure to the disease. In this sense, we expect to find a negative effect, that is, the higher the malaria risk index in the municipality at birth the lower level of human capital outcomes in adult life. The results show that imminent exposure to malaria at birth may be negatively correlated with proficiency.

Health at Birth, short-run health effects and educational outcomes

ABSTRACT. This paper estimates the effects of birth weight on health and educational outcomes for Brazil using a twin fixed effect approach. The recent literature, mainly based on data from developed countries, has provided evidence that health at birth is a critical factor for outcomes related to health and to cognition. Using a matching of administrative records of birth and school enrollment we aim to provide this type of evidence for Brazil. The main finding is that birth weight matters. For instance, there is evidence that a 10% increase in weight is associated with a 0.6% increase in Apgar, a score for health at birth. In the educational dimension, the findings suggest that a 10% increase in birth weight is associated with a 6% increase in the chances of completing high school by the age of 17 and with a 3.6% decrease in the probability of repeating a grade. Furthermore, estimates provide evidence that parents tend to reinforce, rather than compensate, the negative effects of adverse initial health conditions. Larger effects are found for the infants with low birth weight, limited access to basic health care services, lower maternal education and enrolled at schools of lower socioeconomic status.

10:30-12:00 Session 20C: Special Session - Swiss Program for Research on Global Issues for Development: Trade and Labor Market Outcomes in Developing Countries
Location: Capri 1
The China Shock: Consumption Patterns
Exports and Firm Organization
Trade and Women’s Wage Employment
Labor Clauses in Trade Agreements: Worker Protection or Protectionism?
10:30-12:00 Session 20D: Special Session - Environment
Location: Capri 4
Power plants and deforestation: recent evidence from the Amazon
Energy and misallocation in the industry: evidence from Brazil
Hedging Climate Change: yield volatility, crop choice and trade