ABSTRACT. This paper assesses the impact of a large-scale national policy (the NASF program) that broadened the scope of services provided by Brazil’s main primary healthcare program, integrating mental health services into it. Using a difference-in-differences design that exploits the roll-out of the program across municipalities over time, we show that it had a positive effect on the supply of non-medical health professionals and utilization of services delivered by them, but had smaller or no impact the supply of specialist physicians. For mental health professionals, we show a large impact on the supply of psychologists and occupational therapists, and a smaller impact on the supply of psychiatrists. We found no impact of the policy neither on mental health related nor on non-mental health related deaths, hospitalizations and days on sick leave. Those result do not vary with the presence of more specialized mental healthcare services in the municipality. Together, these results show that increasing the supply of more scarce health professionals with higher outside options, like psychiatrists, might demand specific policies and that increasing healthcare professionals supply and service utilization might not be enough to improve mental health outcomes

ABSTRACT. Religion and beliefs in the supernatural are present in all societies. Yet, studies about the economic roots of small-scale belief systems remain quite limited. In this work, we test the anthropological hypothesis that historical dependence on pastoralism favored the adoption of customs that contributed to the reduction in witchcraft beliefs. Pastoral societies were characterized by the use of social strategies as a way of mitigating the risks inherent in pastoral production, making the practice of accusations of witchcraft a barrier to maintaining their existing social ties. Consistent with this hypothesis, we document that people descending from historically more pastoral societies have a lower level of contemporary belief in witches in Sub-Saharan Africa. Using an instrumental variable based on the ecological determinants of pastoralism, we find an 18 percent reduction in the incidence of contemporary witchcraft beliefs. We further show that the main mechanism behind our result seems to be pastoralist groups' freedom of movement and an increase in social ties, proxied by the level of trust in relatives, neighbors, courts, and local councils. Finally, to test for the importance of cultural persistence, we examine people who live in locations with low levels of suitability for pastoralism but belong to ethnic groups that have historically lived in areas with high levels of suitability and show that the reduction in belief in witches persists.

ABSTRACT. Can a clearinghouse generate a stable matching if it does not allow students to express their preferences over both programs and peers? Application data from Australia’s centralized college admissions system show that students have preferences over the academic abilities of their peers. However, the matching mechanism used only allows students to express preferences over programs, not over peers. Theoretically, we show that a stable matching exists with peer preferences under mild conditions, but finding one via canonical mechanisms is unlikely. We show that increasing transparency about the previous cohort of students enrolling at each program, analogously to the process in the Australian market, induces a tâtonnement wherein the distributions of former students play the role of prices. We theoretically model this process and develop a test for match stability. We implement this test empirically to show that the Australian market fails to converge to stability over time, and that this instability especially affects low socioeconomic status students. To address these issues, we propose a new mechanism that improves upon the current design, and we show that this mechanism generates a stable matching in the Australian market.

ABSTRACT. Affirmative action policies in higher education have been adopted in different settings to reduce structural inequality in college enrollment and attainment. A large body of literature shows the efficacy of these policies to increase the representation of under- represented groups in higher education. Less is known, however, about their impact on students’ choices and outcomes before college. This paper studies how affirmative action impacts demand for schooling among high school students. Our paper leverages cross-sectional and time variation in exposure to changes in local and nationwide affirmative action policies adopted in Brazil. These policies primarily targeted applicants from public high schools to indirectly reduce socioeconomic and racial inequality in college access. We investigate how affirmative action affects high school persistence and demand for college. In line with theoretical predictions, our results show that affirmative action increases high-school persistence and demand for college for public-school students, the targeted group. In contrast, it does not affect persistence and negatively affects college demand for private-school students, the non-targeted group. Given the income sorting between public and private high schools in Brazil, these results show that affirmative action shrinks the socioeconomic gap in school persistence and demand for college.

ABSTRACT. Using rich administrative and household survey data, 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 innovations show cyclical movements in Brazil that are similar to those in developed countries like the US. Earnings mobility is comparatively high, especially at the bottom of the distribution. Compared with those in the formal sector, earnings in the informal sector are more volatile. Workers who switch between sectors experience earnings innovations that have a positive mean and are positively skewed when moving to the formal sector but have a negative mean and are negatively skewed when moving to the informal sector. Since the early 2000s, a secular shift of employment toward the less volatile formal sector has contributed to a decline in the economy-wide volatility of earnings.

ABSTRACT. Limited tax capacity, inadequate tax administration, and poorly design tax systems are common features of most developing countries. We study a tax reform (\textit{SIMPLES}) in Brazil, a developing economy with a large informal sector. Our empirical analysis reveals that the \textit{State-SIMPLES} tax reform had a substantial effect on firms at different stages of production regarding their intensive margins (i.e., reported revenue and costs) to the \textit{SIMPLES} massive tax reductions. For downstream eligible firms, we observed reductions in reported production costs vis-a-vis non-eligible firms. We also characterize the optimal tax instruments with limited tax capacity for a multistage, value-added, and turnover tax systems and show that the elasticities of misreported sales and purchase %gaps to policy instruments are behavioral statistics that %complement substitute the traditional Diamond and Mirrlees (1971)'s %mechanical efficiency effect of taxation. We evaluate numerically the optimal tax systems. Assuming similar misreporting costs to all firms, the optimal taxes on upstream is larger than zero and tax rebate smaller than one.

ABSTRACT. This paper assesses the monetary policy rule followed by the Central Bank of Brazil (BCB) in the inflation targeting regime and investigates how professional forecasters (economic agents, mainly financial institutions) foresee policy decisions about the base interest rate. We compare interest rate rule estimates by using actual data and expected variables identified by professional forecaster, considering alternative specifications and controlling for other covariates and exogenous shocks in robustness checks. We estimate regressions with observed and expected variables to verify if the ex-post policy interest rate rule is contained in the information set available to the market forecasters when forming their expectations. Our results confirm that the BCB follows a Taylor-type of interest rate rule in which the base rate responds to deviation in inflation from the target level and to the output gap, including a signicant smoothing component. There is a consistent pattern in the economic agents' expectations of the BCB's behavior by foreseeing aggressive reactions to inflation pressures in the short run but accommodative responses in longer time horizons. We offer some insightful explanations to this evidence that, to best of our knowledge, has not been yet explored in the literature.

ABSTRACT. We assess the usefulness of structural demand shocks and identification-robust procedures to make inference on the parameters of the New Keynesian Phillips Curve (NKPC) augmented with a cost channel. As our empirical analysis involves more instruments than endogenous regressors, we use econometric methods that are robust to weak instruments and adequate for over-identified models. Our findings using US data pointed to at least three of problems in identifying the NKPC parameters: i) the coefficient on the expected inflation is frequently unidentified; ii) the effect of the real marginal cost on inflation is uncertain as confidence intervals are either unbounded or include zero; iii) the effect of the interest rate on inflation is identified but the confidence sets show that the cost channel is not statistically significant.

ABSTRACT. This paper calibrates multi-sector models of menu costs with intermediate inputs to the Brazilian economy. In particular, we use the model proposed by Nakamura and Steinsson (2010) to understand the degree of monetary non-neutrality induced by price rigidity. For comparison, we estimate a VAR model for the aggregate economy (Shapiro and Watson, 1988) and compute the share of real GDP fluctuations due to nominal shocks. Multi-sector models account for up to 12.6% of output fluctuations. This is consistent with our VAR estimations, where the nominal component is responsible for approximately 15% of the observed variation in aggregate output.

ABSTRACT. This paper aims to develop an “unambiguous” method of comparing the choice behavior of individuals on the basis of rationality. Unlike the previous approaches, which propose indices of (in)compatibility with rational choice, I provide a basic criterion that leads to a partial rationality ordering. After studying its properties, I show that none of the existing indices of incompatibility is consistent with it. Consistency with the rationality ordering is then characterized, and this characterization is used to propose a new index of incompatibility. As an application, I apply my approach to reinterpret the results of an earlier experimental test of rationality.

ABSTRACT. We study how firms compete to attract informed trading when financial markets provide information to decision makers. Firms increase managerial risk taking to compete for market information, leading to a rat race in which firms overinvest in a (failed) attempt to increase their own stock informativeness. Efficiency gains of learning from the market may be eliminated: There is always an equilibrium where financial markets provide useful information, but are completely ignored by decision makers. Moreover, in any equilibrium firms react too little to market activity. Our results highlight that critically different outcomes arise when firms interact in integrated financial markets.

ABSTRACT. Customers increasingly rely on rating systems when hiring experts. If a rating system is poorly designed, the reputational gain from taking a certain action might be excessively high, inducing experts to over-choose it. In such a case, markets could even cease to exist altogether. We show how to design simple, optimal rating systems for both customers and experts. Such rating systems overcome market failures and improve upon both the full memory case and the case with no memory at all. Customers benefit from a higher number of ratings, while binary systems are sufficient to achieve the expert’s highest value.

ABSTRACT. This paper investigates the relationship between financial conditions, macroeconomic uncertainty, and business cycles in emerging markets. For a set of 15 emerging economies, using a model that allows shocks to affect second moments, we show that macroeconomic uncertainty, interpreted as a deterioration in the accuracy of forecasts of key macroeconomic variables, increases after some macroeconomic shocks under financial stress regime but not in normal times. We then show that a model for a sudden stop-prone small open-economy featuring a Fisherian debt-deflation mechanism and Epstein-Zin preferences generates responses similar to what we found in our empirical analysis. When the economy is sufficiently close to a binding constraint, the risk of a regime change induces a deterioration in the forecast accuracy. It happens because the economy behaves very differently across regimes, and the regime switching is affected by random shocks. Thus, in such regions, uncertainty responds endogenously to the state of the economy. However, when the economy is sufficiently away from a binding constraint, the macroeconomic volatility is mainly driven by exogenous shocks.

ABSTRACT. Global interdependencies have caused affine term structure models (ATSMs) to adopt a multicountry dimension. Nevertheless, recent referenced ATSMs face issues of tractability as the model dimension becomes larger. To close this gap, this paper proposes a ATSM in which the risk factor dynamics follow a global vector-autoregressive (GVAR). ATSM-GVAR renders a parsimonious yield curve parametrization, which allows for a fast estimation process, enables meaningful statistical inference of economic relationships, and produces accurate bond yields out-of-sample forecasting. To empirically illustrate our novel ATSM, we build a markedly integrated economic system composed of three Latin American economies and China. We find that, consequent to its prominent role in the worldwide economy, China's economic stances have nonnegligible impacts on Latin American yield curve dynamics.

ABSTRACT. We propose and implement a new index of business cycle co-movement which is based on a structural time-varying bayesian VAR with a block-exogeneity hypothesis for a given pair of a large economy and a small open economy. The index is based on the sum of the responses of the small open economy to shocks in the large economy over time, thus allowing us to disentangle and measure the source of the shock, impact variables and duration of co-movement. Our index suggests that the business cycle co-movement is led primarily by country-pair characteristics, but decoupling trends can be observed in a considerable number of country-pairs, specially at long term windows. We provide an application of this approach to a global banks framework - which allows us to measure some yet unmeasured theoretical mechanisms. Using a sample of developed and developing countries, we find no evidence of the prevalence of such mechanisms in business cycle co-movement.

ABSTRACT. We argue that the sheer rational expectation about some typical behaviors of retail investors can induce large and persistent overpricing in popular high-risk stocks. It is well-known that retail investors like distressed stocks. Hence, in a distress scenario, retail investors' increased demand, coupled with high short-selling costs, will allow agents to exit at higher prices, as if they had a put option. Anticipating this, rational investors agree to overpay in normal times. We develop a quantitative asset-pricing model and tightly calibrate it using detailed trading data on OGX, a failed Brazilian oil giant that was popular among retail investors. We estimate an overpricing of 6% well before distress hits, and an average overpricing of US$ 1.7 billion over almost two years.

ABSTRACT. This paper argues that short selling might give rise to bubbles that would otherwise not exist in equilibrium. It is crucial for the argument that short selling is not the same as issuing an asset: it may require buying the stock later on. An asset with no fundamental value might be traded at positive prices because short selling raises the stock's future demand. Several features of our model resemble the short-squeeze episodes of 2021.

ABSTRACT. We study the macroeconomic and social effects of Universal Basic Income (UBI) programs in a developing economy, comparing them with policies that condition cash transfers on household characteristics (CCT). We construct a dynastic heterogeneous-agent model with human capital investment and choice of labor effort and calibrate it to Brazilian data. In the short run, UBI alleviates poverty and increases the welfare of the poor. Over time, however, income falls and poverty and inequality increase since investments in physical and human capital decrease along with labor supply. In most dimensions, CCT programs outperform UBI policies, largely due to school enrollment requirements.

ABSTRACT. Many countries are currently dealing with how to fund consumption for retirees as populations age. The issue of funding retirement is made more difficult as workers spend more time in retirement due to increasing lifespans or choices for early retirement. Increasing the age at which a worker can claim a pension is a popular policy proposal meant to decrease the burden of aging populations on the pension system. However, such an increase in the statutory retirement age has two contradictory effects on the government budget: (1) it lowers pension costs as workers spend fewer years in retirement, and (2) it increases pension costs as longer working lives may lead to higher average earnings and, therefore, pensions. In order to analyze these mechanisms, I build an overlapping generations model with three main features: age and productivity heterogeneity, a worker decision of when to retire, and a method for the pension to endogenously depend upon the earnings of the worker. This paper considers the case of Brazil--an economy where workers are incentivized to retire young. I consider a reform passed in February 2019 as well as a counterfactual reform to isolate the mechanisms discussed. I find that the proposed reform leads to long-run welfare losses due to longer working lives. Additionally, I find that a policy counterfactual which bases pension on median earnings rather than a worker's own earnings increases aggregate pension costs due to the large fraction of low-income workers. This result indicates that the impact of increasing the statutory retirement age on aggregate pension spending depends upon the income distribution of the economy considered.