Papers by Waldyr Dutra Areosa
Social Science Research Network, Feb 2, 2016
BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for... more BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. This publication is available on the BIS website (www.bis.org).
Microeconomics: Welfare Economics & Collective Decision-Making eJournal, 2016
Using a textbook New Keynesian model extended with an inequality channel, we examine optimal mone... more Using a textbook New Keynesian model extended with an inequality channel, we examine optimal monetary policy departing from the traditional utilitarian social welfare function, to consider alternative functions, including the Rawlsian approach of putting only weight to the agent with the lowest welfare level. Our main results show the optimal responses from a Rawlsian monetary authority are: (i) a less aggressive monetary tightening, but inducing a more pronounced drop in inflation after a monetary shock; (ii) a monetary policy easing after an increase in government spending and (iii) a more pronounced drop in the interest rate after a positive total factor productivity shock.
We use a sticky-dispersed information model to analyze how price setting changes when the interes... more We use a sticky-dispersed information model to analyze how price setting changes when the interest rate is understood as a public signal that informs the views of the monetary authority on the current state of the economy. Firms use information to infer one another's prices, as they face strategic complementarity on price decisions. We build a counterfactual to isolate the informational efffect of interest rate and study its influence on inflation dynamics. We also obtain the optimal parameters of the policy instrument (regarding three different criteria), considering that the central bank knows that firms take information from its actions.
This paper derives and estimates a structural model for inflation in an open economy. The model r... more This paper derives and estimates a structural model for inflation in an open economy. The model represents the standard new-Keynesian Phillips curve (NKPC) and the hybrid curve proposed by Woodford (2003) and Gaĺı and Gertler (1999) as special cases. We present two sets of estimates for the Brazilian economy, initially regarded as a closed economy and then as a small open economy. According to the recent literature, the model contemplates indexation to past inflation and a measure of marginal cost as relevant inflation indicators. Some of the results can be summarized as follows: (i) Brazil, when regarded as a closed economy, has a relatively higher level of nominal rigidity than that of the United States and Europe, and a high level of indexation as well; (ii) In an open economy with indexation, nominal exchange rate appreciation plus foreign inflation affects consumer inflation, and this effect becomes more intense with larger economic openness; (iii) There is a small direct impa...
ABSTRACT. Nonlinear regression models have been widely used in practice for a variety of time ser... more ABSTRACT. Nonlinear regression models have been widely used in practice for a variety of time series and cross-section datasets. For purposes of analyzing univariate and multivariate time series data, in particular, Smooth Transition Regression (STR) models have been shown to be very useful for representing and cap-turing asymmetric behavior. Most STR models have been applied to univariate processes, and have made a variety of assumptions, including stationary or cointegrated processes, uncorrelated, homoskedastic or con-ditionally heteroskedastic errors, and weakly exogenous regressors. Under the assumption of exogeneity, the standard method of estimation is nonlinear least squares. The primary purpose of this paper is to relax the assumption of weakly exogenous regressors and to discuss moment based methods for estimating STR models. The paper analyzes the properties of the STR model with endogenous variables by providing a di-agnostic test of linearity of the underlying process u...
We present a DSGE model with heterogeneously informed agents and two investment opportunities – s... more We present a DSGE model with heterogeneously informed agents and two investment opportunities – stocks and bonds – to study the interaction between monetary policy and asset prices. The information is both sticky, as in Mankiw e Reis (2002), and dispersed, as in Morris e Shin (2002). This framework allows us to (i) show that variations in stock market wealth affect consumption, (ii) demonstrate that a central bank can prevent the creation of boom-bust episodes in the economy, (iii) determine the moment of a bust occurrence and (iv) study the impulse responses to dividend and informational shocks.
In this paper, we propose a methodology to construct a Financial Conditions Indicator (FCI) based... more In this paper, we propose a methodology to construct a Financial Conditions Indicator (FCI) based on Brave and Butters (2011) and Aramonte et al. (2013). The main idea is to use a selected set of economic and financial time series and aggregate their information content into a single index that summarizes the overall financial conditions of the economy. This approach can be further employed to forecast economic activity. An empirical exercise for Brazil is provided to illustrate the methodology, in which a modified IS-type equation (substituting the interest rate by the FCI) is employed to point forecast the output gap. In addition, a standard quantile regression technique (e.g. Koenker, 2005) is used to construct density forecasts and generate fan charts of future economic activity. A risk analysis is conducted within this setup in order to compute conditional probabilities of the output growth to be above/below a given scenario
The goal of this paper is to present how a Dynamic General Equilibrium Model (DSGE) can be used b... more The goal of this paper is to present how a Dynamic General Equilibrium Model (DSGE) can be used by policy makers in the qualitative and quantitative evaluation of the macroeconomics impacts of two monetary policy instruments: (i) short term interest rate and (ii) reserve requirements ratio. In our model, this last instrument affects the leverage of banks that have to deal with agency problems in order to raise funds from depositors. We estimated a modified version of Gertler and Karadi (2011), incorporating a reserve requirement ratio, in order to answer two questions: (i) what is the impact of a transitory increase of 1% p.y. of the short term interest rate on macroeconomic variables like GDP, inflation and investment? (ii) what is the macroeconomic impact of a transitory increase of 10% in the reserve requirement ratio? We found that these two shocks have the same qualitative effects on the most of the macroeconomic variables, but that the impact of interest rate is much stronger.
The goal of this paper is to present how a Dynamic General Equilibrium Model (DSGE) can be used b... more The goal of this paper is to present how a Dynamic General Equilibrium Model (DSGE) can be used by policy makers in the qualitative and quantitative evaluation of the macroeconomics impacts of two monetary policy instruments: (i) short term interest rate; and (ii) reserve requirements ratio. In our model, this last instrument affects the leverage of banks that have to deal with agency problems in order to raise funds from depositors. We estimated a modified version of Gertler and Karadi (2001), using Brazilian data and incorporating a reserve requirement ratio, in order to answer two questions: (i) what is the impact of a transitory increase of 1% p:y: of the short term interest rate on macroeconomic variables like GDP, inflation and investment? (ii) what is the macroeconomic impact of a transitory increase of 10% in the reserve requirement ratio? We found that these two shocks have the same qualitative effects on the most of the macroeconomic variables, but that the impact of inter...
This paper proposes a methodology for constructing a Financial Conditions Indicator (FCI) based o... more This paper proposes a methodology for constructing a Financial Conditions Indicator (FCI) based on factor analysis and the approaches of Brave and Butters (2011) and Aramonte et al. (2013). A selected set of variables is used and their information content aggregated into a single index that summarizes the overall financial conditions of the economy. The approach is further employed to forecast economic activity. An empirical exercise for Brazil is provided to illustrate the methodology, in which a reduced-form equation is employed to point forecast the growth rate of the Brazilian economy. In addition, a quantile regression technique is used to construct density forecasts and generate probability density functions of future economic activity. Finally, a risk analysis is conducted within this set-up in order to compute conditional probabilities of the growth rate of the economy to be above/below a given scenario, which might be useful for both academics and policymakers’ concerns.
This paper derives and estimates a structural model for inflation in an open economy. The model r... more This paper derives and estimates a structural model for inflation in an open economy. The model represents the standard new-Keynesian Phillips curve (NKPC) and the hybrid curve proposed by Woodford (2003) and Gaĺı and Gertler (1999) as special cases. We present two sets of estimates for the Brazilian economy, initially regarded as a closed economy and then as a small open economy. According to the recent literature, the model contemplates indexation to past inflation and a measure of marginal cost as relevant inflation indicators. Some of the results can be summarized as follows: (i) Brazil, when regarded as a closed economy, has a relatively higher level of nominal rigidity than that of the United States and Europe, and a high level of indexation as well; (ii) In an open economy with indexation, nominal exchange rate appreciation plus foreign inflation affects consumer inflation, and this effect becomes more intense with larger economic openness; (iii) There is a small direct impac...
The aim of this study is to provide a preliminary measure of the impact of a mega sports event in... more The aim of this study is to provide a preliminary measure of the impact of a mega sports event in consumer inflation. This measure can serve as a proxy of the impact of the FIFA World Cup 2014 and the 2016 Olympic Games in the evolution of inflation in Brazil, measured by the National Index of Consumer Price (IPCA). We used the method of Bruckner and Pappa (2013) adapted to handle two features: (i) hyperinflation and (ii) inertia. The modified methodology was applied to an unbalanced panel data for the consumer inflation of 173 countries and all mega sporting events during the period 1948-2022, including FIFA World Cups and both Winter and Summer Olympic Games. The results indicate that the impact of these events on the IPCA is limited and transitory
We present a methodology to construct a Broad Financial Stability Indicator (FSIB) based on unobs... more We present a methodology to construct a Broad Financial Stability Indicator (FSIB) based on unobserved common factors and a Specific Financial Stability Indicator (FSIS) for the Brazilian economy combining observed credit, debt and exchange rate markets indicators. Rather than advocate a particular numerical indicator of financial stability, our main goal is methodological. Our indicators, calculated in sample and ex-post, seem to capture three periods of considerably high financial instability in Brazil: (i) the 1998/1999 speculative attack on the Real, (ii) the government transition of 2002/2003 and (iii) the intensification of the 2008/2009 subprime financial crisis triggered by the collapse of the Lehman Brothers. We also propose an alternative methodology that decomposes business cycle fluctuations in two components -- a Financial Factor (FF) and a Real Factor (RF) -- which are identified from co-movements of financial and non-financial variables. The results are similar to the...
Macroeconomic Dynamics
We study the interaction between dispersed and sticky information by assuming that firms receive ... more We study the interaction between dispersed and sticky information by assuming that firms receive private noisy signals about the state in an otherwise standard model of price setting with sticky information. We compute the unique equilibrium of the game induced by the firms’ pricing decisions and derive the resulting Phillips curve. The main effect of dispersion is to magnify the immediate impact of a given shock when the degree of stickiness is small. Its effect on persistence is minor: even when information is largely dispersed, a substantial amount of informational stickiness is needed to generate persistence in aggregate prices and inflation.
Working Papers Series, 2013
The goal of this paper is to present how a Dynamic General Equilibrium Model (DSGE) can be used b... more The goal of this paper is to present how a Dynamic General Equilibrium Model (DSGE) can be used by policy makers in the qualitative and quantitative evaluation of the macroeconomics impacts of two monetary policy instruments: (i) short term interest rate and (ii) reserve requirements ratio. In our model, this last instrument affects the leverage of banks that have to deal with agency problems in order to raise funds from depositors. We estimated a modified version of Gertler and Karadi (2011), incorporating a reserve requirement ratio, in order to answer two questions: (i) what is the impact of a transitory increase of 1% p.y. of the short term interest rate on macroeconomic variables like GDP, inflation and investment? (ii) what is the macroeconomic impact of a transitory increase of 10% in the reserve requirement ratio? We found that these two shocks have the same qualitative effects on the most of the macroeconomic variables, but that the impact of interest rate is much stronger.
We present a DSGE model with heterogeneously informed agents and two investment opportunities – s... more We present a DSGE model with heterogeneously informed agents and two investment opportunities – stocks and bonds – to study the interaction between monetary policy and asset prices. The information is both sticky, as in Mankiw e Reis (2002), and dispersed, as in Morris e Shin (2002). This framework allows us to (i) show that variations in stock market wealth
SSRN Electronic Journal, 2000
The views expressed in this work are those of the authors and do not necessarily reflect those of... more The views expressed in this work are those of the authors and do not necessarily reflect those of the Banco Central or its members. Although these Working Papers often represent preliminary work, citation of source is required when used or reproduced. As opiniões expressas neste trabalho são exclusivamente do(s) autor(es) e não refletem, necessariamente, a visão do Banco Central do Brasil. Ainda que este artigo represente trabalho preliminar, é requerida a citação da fonte, mesmo quando reproduzido parcialmente.
SSRN Electronic Journal, 2000
This Working Paper should not be reported as representing the views of the Banco Central do Brasi... more This Working Paper should not be reported as representing the views of the Banco Central do Brasil. The views expressed in the paper are those of the authors and do not necessarily re ect those of the Banco Central do Brasil. We study the transmission of information in a model with a vertical inputoutput structure and dispersed information. Firms observe input prices with noise that endogenize the precision of information that is public within a stage but not across stages. In contrast to the case with an exogenous and overall public signal, our main result is that agents may nd it optimal to rely less on public information along the chain. A direct implication is that, while information precision remains unchanged with exogenous public signals (information chains), it may decrease along the chain when semi-public signals are endogenous (information in chains).
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Papers by Waldyr Dutra Areosa