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Research Topics

Macroeconomics


Creation and Evolution of Inflation Expectations in Paraguay
Alonso, Pablo
Working Papers - English - Aug, 2018

This paper seeks to identify the main determinants of the formation of inflation expectations in Paraguay since the adoption of the inflation targeting regime. This work bases the analysis on the results obtained from the expectations surveys conducted by the country’s monetary authority. Likewise, it is important to note that the dispersion of respondents’' answers was adjusted within the inflation range and that it has also decreased according to the reduction in this range. This further demonstrates the effectiveness of the expectations channel, thanks to the credibility that the central bank has been achieving.

Related JEL Codes:
E31 - Price Level; Inflation; Deflation
E52 - Monetary Policy
E58 - Central Banks and Their Policies


Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico
Bernabé López-Martín, Alberto; Ramírez de Aguilar, Daniel Samano
Working Papers - English - Aug, 2018

This paper estimates a hidden Markov model where ination is determined by government decits nanced through money creation and/or by destabilizing expectations dynamics (expectations can potentially divorce ination from fundamentals). The baseline model, proposed by Sargent et al. (2009), is used to analyze the interaction between scal decits, ination expectations, and ination in Mexico. The model is able to distinguish between causes and remedies of hyperination, such as persistent or transitory shocks to seigniorage-nanced scal decits, de-anchoring of ination expectations from scal fundamentals, and cosmetic (non-fundamental) monetary reforms. The behavior of monetized decits provides an adequate account of high ination episodes and stabilizations for the period 1969-1994. The paper then extends the model to analyze the possibility that scal policy can aect ination expectations in a context of Central Bank independence, as is the case of Mexico after 1994. Evidence is found that the exchange rate and sovereign interest rate spreads inuence the evolution of aggregate prices.

Related JEL Codes:
E31 - Price Level; Inflation; Deflation
E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
E52 - Monetary Policy
E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization


MIDAS Modeling for Core Inflation Forecasting
Libonatti, Luis
Working Papers - English - Aug, 2018

This paper presents a forecasting exercise that assesses the predictive potential of a daily price index based on online prices. Prices are compiled using web scrapping services provided by the private company PriceStats in cooperation with a finance research corporation, State Street Global Markets. This online price index is tested as a predictor of the monthly core inflation rate in Argentina, known as “resto IPCBA” and published by the Statistics Office of the City of Buenos Aires. Mixed frequency regression models offer a convenient arrangement to accommodate variables sampled at different frequencies and hence many specifications are evaluated. Different classes of these models are found to produce a slight boost in out-of-sample predictive performance at immediate horizons when compared to benchmark naïve models and estimators. Additionally, an analysis of intra-period forecasts, reveals a slight trend towards increased forecast accuracy as the daily variable approaches one full month for certain horizons.

Related JEL Codes:
C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Models
C53 - Forecasting and Prediction Methods; Simulation Methods
E37 - Forecasting and Simulation


Firm Knowledge and International Business Cycles
Ayres, João
Discussion Papers - English - Aug, 2018

This paper quantifies the flow of knowledge within U.S. multinational corporations in the United States and European Union. A a general equilibrium model of knowledge flows within multinationals is used to compute the parameter values related to knowledge production such that, in steady state, the model matches the observed factor share differentials between the operations of U.S. multinationals in the United States and European Union. The main assumptions are i) U.S. multinationals produce knowledge in the United States, ii) this knowledge is used by its subsidiaries in the European Union and iii) investment in knowledge is either unobserved or expensed in corporate accounts. The results show that a) the calibrated model matches the observed differentials in the rates of return of U.S. multinational investments in the U.S. and in the European Union, and investment in knowledge is 1.4 times larger than investment in physical capital. Furthermore, it is shown that the model calibrated with these parameter values has quantitative implications for international real business cycles. Accounting for the corporate sector GDP correlation, the model with knowledge flows reduces the distance between the standard international real business cycle model and data by 48 percent.

Related JEL Codes:
E58 - Central Banks and Their Policies
F34 - International Lending and Debt Problems


How International Reserves Reduce the Probability of Debt Crises
Hernández, Juan
Discussion Papers - English - Aug, 2018

Many emerging economies maintain significant positions in both external sovereign debt and foreign reserves, paying spreads of over 250 basis points on average. Arguments advanced in empirical work and policy discussions suggest that governments may do this because international reserves play a role in reducing the likelihood of sovereign debt crises, improving a country’s access to debt markets. This paper proposes a model that justifies that argument. The government makes optimal choices of debt and reserves in an environment in which self-fulfilling rollover crises a-là Cole-Kehoe and external default a-là Eaton-Gersovitz coexist. This allows for both fundamental and market-sentiment-driven debt crises. Self-fulfilling crises arise because of a lender’s coordination problem when multiple equilibria are feasible. Conditional on the country’s Net Foreign Asset position, additional reserves make the sovereign more willing to service its debt even when no new borrowing is possible, which enlarges the set of states in which repayment is the dominant strategy and, hence, reduces the set of states that admit a self-fulfilling crisis. From an ex-ante perspective, reserves reduce the probability of crises in the future which lowers current sovereign spreads. Quantitatively the model can explain 50% of Mexico’s international reserves holdings, while accounting for key cyclical facts.

Related JEL Codes:
E58 - Central Banks and Their Policies
F34 - International Lending and Debt Problems


Results: 1 - 5 of 936

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