Whom do you distrust and how much does it cost? An experiment on the measurement of trust

We advance the measurement of trust in economics in two ways. First, we highlight the importance of clearly identifying the target of trust, particularly for obtaining concordance between attitudinal and behavioral measures of trust. Second, we introduce a novel behavioral measure of (dis)trust, based on individuals? willingness to pay to avoid being vulnerable to the target of trust. We conduct an experiment in which we vary the target of trust among passersby at several locations around a city, measuring both behavioral distrust and trust attitudes towards these varying targets. We find that subjects discriminate based on perceived characteristics of different targets in determining whether to trust, in a manner consistent with trust elicited using attitudinal measures and with actual trustworthiness. Risk aversion and altruism do not correlate highly with our measure of distrust.     

LATIN AMERICAN EXCHANGE RATE DEPENDENCIES: A REGULAR VINE COPULA APPROACH

This study implements a regular vine copula methodology to evaluate the level of contagion among the exchange rates of six Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru) from June 2005 to April 2012. We measure contagion in terms of tail dependence coefficients, following Fratzscher's (1999) definition of contagion as interdependence. Our results indicate that these countries are divided into two blocks. The first block consists of Brazil, Colombia, Chile, and Mexico, whose exchange rates exhibit the largest dependence coefficients, and the second block consists of Argentina and Peru, whose exchange rate dependence coefficients with other Latin American countries are low. We also found that most of the Latin American exchange rate pairs exhibit asymmetric behaviors characterized by nonsignificant upper tail dependence and significant lower tail dependence. These results imply that there exists contagion in Latin American exchange rates in periods of large appreciations, whereas there is no evidence of contagion during periods of currency depreciation. This empirical regularity may reflect the “fear of appreciation” in emerging economies identified by Levy‐Yeyati, Sturzenegger, and Gluzmann (2013). (JEL C32, C51, E42)     

Wealth in Latin America: Evidence from Chile,Colombia, Mexico and Uruguay

Drawing on recently-available microdata from financial surveys, this paper presents harmonized indicators for household wealth, its components, and its determinants in four Latin American countries (Chile, Colombia, Mexico and Uruguay), using Spain as a comparison benchmark. The paper analyzes the relationship between wealth indicators and sociodemographic characteristics of household heads (age, education, gender, marital status). For Uruguay, we are also able to analyze wealth patterns and intergenerational mobility (inheritance, family businesses and parental education).     

Relationship between trade openness and economic growth in Latin America: A causality analysis with heterogeneous panel data

We empirically analyze the causality relationship between economic growth and international trade using new advancements in the econometric methodology for heterogeneous panel data applied to Latin American countries. First, we test for dependencies between the units of cross‐section (countries) and then we test for cointegration between growth and openness. Finally, we test for Granger causality using a heterogeneous panel data test. The results reject the hypothesis of general, unidirectional, and homogeneous relationship between trade openness and economic growth in Latin American countries as a group. However, considering heterogeneity, we found significant evidence of causality from trade liberalization to economic growth in Chile, Peru, Nicaragua, and Uruguay; we have found bidirectional causality in Mexico and Honduras; and a causal relationship from economic growth to trade liberalization in Colombia, Costa Rica, Guatemala, and the Dominican Republic.     

Orderly exits from adjustable pegs and exchange rate bands

This paper examines the exit process from adjustable pegs and exchange rate bands, and the role of capital flows in these exits. It dwells on the experience of various countries, including Chile, Colombia, Egypt, Israel, India, Poland, and Yemen. It begins by identifying conditions under which exits are sought. Next, it discusses the prerequisites for a successful exit, factors affecting the pace of exit, and the nature of the post‐exit regime. It then examines the behavior of private capital flows, interest rates, and official reserves before and after three successful exits (Chile, India, and Poland), and draws broad policy lessons.     

What do Latin American inflation targeters care about? A comparative Bayesian estimation of central bank preferences

This paper employs Bayesian estimation to uncover the central bank preferences of the five Latin American inflation targeting countries with floating exchange rates: Brazil, Chile, Colombia, Mexico, and Peru. The target weights of each country’s central bank loss function are estimated using a medium-scale small open economy New Keynesian model with imperfect exchange-rate pass-through under either complete or incomplete international asset markets. Bayesian model comparison selects: (i) unambiguously the complete markets model version; (ii) the model specification with explicit concern for real exchange rate stabilization, with the exception of Peru. Our results suggest that the central banks of Mexico and Peru are closest to following a strict inflation targeting regime, whereas Brazil, Chile, and Colombia also assign a sizeable weight to output gap and real exchange rate stabilization. Finally, the estimated preference weights for each central bank are shown to credibly reflect their legal mandates.     

Stock and credit market expansion and economic development in emerging markets: further evidence utilizing cointegration analysis

This paper empirically investigates the relationship between equity and credit market development and economic growth, in a sample of five very important ‘emerging’ markets. In particular, employing a multivariate time-series methodology to test for long-run trends and causality between variables that proxy for stock market development, credit market development and economic development. The results seem to suggest that equity markets have a role to play only in relatively liberalized economies, like Chile and Mexico. In financially repressed economies, like India, the equity market does not affect real sector growth. Furthermore, the banking crises in the 1980s and 1990s in Chile and Mexico resulted in a negative relation between economic growth and the credit market. In South Korea, equity and credit markets both affect economic growth, but not vice versa. In countries where the nature of the stock market has been speculative, like Taiwan, a negative relationship is detected between equity market development and economic development.     

Productivity,Structural Change and Latin American Development

We calibrate a simple neoclassical growth model adapted to illustrate a process of structural transformation or industrialization to a group of nine South American countries. The paper shows that low levels of agricultural productivity can substantially delay the process of industrialization, which, together with low levels of non‐agricultural productivity observed in recent decades, satisfactorily explains the significant differences in gross domestic product (GDP) per capita levels among the countries in our sample. The results suggest that Argentina underwent the process of industrialization first followed by Uruguay, Chile, Brazil, Colombia, Ecuador, Peru, Paraguay and Bolivia. The model predicts that the ranking of these countries in terms of GDP per capita would follow this order until convergence occurs. The empirical evidence confirms the prediction of the model with the exceptions of Uruguay and Chile which caught up with Argentina in terms of GDP per capita levels in the late 1980s.     

Taylor principle and inflation stability in emerging market countries

The goal of this paper is to evaluate the validity of the Taylor principle for inflation control in 12 developing countries that use inflation targeting regimes: Brazil, Chile, Colombia, Hungary, Israel, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey. The test is based on a state-space model to determine when each country has followed the principle; then a threshold unit root test is used to verify if the stationarity of the deviation of the expected inflation from its target depends on compliance with the Taylor principle. The results show that such compliance leads to the stationarity of the deviation of the expected inflation from its target in all cases. Furthermore, in most cases, non-compliance with the Taylor principle leads to nonstationary deviation of the expected inflation.     

Population and economic growth: a cointegration analysis of lesser developed countries

The authors examine the temporal relationship between population growth and economic growth in Nepal, India, Ghana, Sri Lanka, Bolivia, Philippines, Guatemala, Syria, Peru, Thailand, Chile, Argentina, and Mexico, conducting Granger-causality tests in the context of error correction models when cointegration is present. Their goal is to provide additional time series econometric evidence on the short-run and long-run time series behavior of population growth and the growth of real per capita gross domestic product for a sample of low to middle income developing countries. Cointegration was found in only 3 of the 13 countries examined. Even though 10 countries in this study exhibited no properties of cointegration, researchers conducting time series studies of the relationship between population growth and economic growth using differenced data should nonetheless evaluate the possible long-term relationship. Capturing the short- and long-run behaviors of the respective time series may give the researcher a more robust test of Granger-causality.     

Common factors in Latin America's business cycles

We develop a common factor approach to reconstruct new business cycle indices for Argentina, Brazil, Chile, and Mexico (“LAC-4”) from a new dataset spanning 135 years. We establish the robustness of our indices through extensive testing and use them to explore business cycle properties in LAC-4 across outward- and inward-looking policy regimes. We find that output persistence in LAC-4 has been consistently high across regimes, whereas volatility has been markedly time-varying but without displaying a clear-cut relationship with openness. We also find a sizeable common regional factor driven by output and interest rates in advanced countries, including during inward-looking regimes.     

The future of the future: Strategic foresight in Latin America

With few differences in timing, future studies in Latin America were initiated with a linear conception of reality. Orchestrated with techniques such as the Delphi, future studies were supported by mathematical principles of probability. Several countries have surpassed this stage while moving into strategic foresight. Strategic foresight analyzes the future as a multiple reality. In other words, it means thinking differently and not reading reality in a linear manner. It means accepting that there is not one future but several futures and that one question could have more than one answer.This change has demanded a shift in mentality. The presence of the disciplines in universities is of vital importance. For example, the Technological Institute of Monterrey (Mexico) and the Universidad Externado de Colombia (Bogota) offer foresight and strategy programs at the graduate level.This article describes how different individuals, groups, agencies and institutions in Latin America have emerged thanks to the support provided by the science and technology governmental agencies of each country. The author provides examples from different countries including Colombia, Brazil, Chile and Mexico. Currently, strategic foresight is slowly gaining recognition and acceptance as a compass for productive sectors and as a generator of competitiveness.However, despite the contributions of strategic foresight, Latin American countries, with the exception of some of the above-mentioned countries, have struggled to take off into the future. The role of strategic foresight can become the driving force behind this awakening, if the challenge of linking global trends with local contextualization through scenarios is accepted.     

PPP in the 34 OECD countries: evidence from quantile-based unit root tests with both smooth and sharp breaks

Conventional unit root tests have mostly failed to validate the PPP. Quantile-based unit root tests by previous research have provided some support for the PPP. In this article, we take an additional step and incorporate sharp shifts and smooth breaks into the quantile-based unit root test and re-examine the PPP in each of the 34 OECD countries over the period 1994:01–2016:03. We find support for the PPP in 18 countries of Austria, Chile, Estonia, Finland, France, Germany, Italy, Korea, Mexico, Netherlands, New Zealand, Poland, Portugal, Slovenia, Sweden, Switzerland, Turkey and the United Kingdom.     

Expansions and contractions in Brazil, Colombia and Mexico: A view through nonlinear models

The study of asymmetric behavior of macroeconomic variables over business cycles has had a long tradition in economics. In this present work, we find evidence in favor of the hypothesis of having a STAR-type nonlinear asymmetric behavior of the economic activity, over the last two decades, in three Latin American countries: Brazil, Colombia, and Mexico. For Chile and Venezuela, the null hypothesis of a linear process could not be rejected under the method established by Granger and Teräsvirta [Granger, C.W.J., Teräsvirta, T., 1993. Modelling Nonlinear Relationships. Oxford University Press, New York]. Economic activity is proxied by monthly based industrial production indexes. Evidence of asymmetric behavior is also found according to the generalized impulse response functions analysis for the three countries.     

The transmission of world commodity prices to domestic markets under policy reforms in developing countries

This paper examines the degree to which world price signals have been transmitted into domestic prices for eight countries and ten commodities, a total of 31 country/commodity pairs. The main characteristic of these countries was that they all undertook substantial policy reforms during the mid‐1980s to early 1990s. The paper investigates the effect of reforms on the speed at which signals were transmitted to domestic markets and on the extent of price transmission. We find that Chile, Mexico, and Argentina are the only countries whose domestic commodity markets were integrated with world markets. For the remaining cases (Ghana, Madagascar, Indonesia, Egypt, and Colombia) in only a few country/commodity pairs is there some passthrough of world price changes. In terms of the effects of policy reforms, in the majority of the cases the hypothesis of a structural break following the reform year is rejected.     

Standardised capital stock estimates in Latin America: a 1950-94 update

Capital stock estimates are used extensively in many areas ofeconomic research, in spite of both theoretical and practicaldifficulties with respect to their use, estimation and meaning.The lack of comparable capital stock estimates in Latin Americahas hindered analysis of economic development in the regionand comparisons with other developed and developing countries.Standardised gross and net fixed capital stock estimates forthe 1950-94 period are presented for seven Latin American countries:Argentina, Brazil, Chile, Colombia, Ecuador, Mexico and Venezuela.The methodology employed is the 'perpetual inventory method'which estimates capital stocks as a weighted sum of past investmentflows. Several methodological issues are discussed, especiallydepreciation and service life estimation. Capital stocks havebeen disaggregated in machinery and equipment, non-residentialand residential structures with services lives of 15, 40 and50 years respectively.     

Testing the theory of PPP for emerging market economies that practice flexible exchange rate regimes

This study aims to test the long-run validity of purchasing power parity by using Fourier quantile unit root and Fourier cointegration analyses for 12 emerging market economies that practice a flexible exchange rate regime. With the Fourier approach, structural breaks are modelled as a gradual and smooth process. Fourier quantile unit root test results show that real exchange rate series are stationary for Colombia, India, Philippines, Poland, South Africa, and Turkey. On the other hand, Fourier cointegration test results reveal that purchasing power parity is valid for Brazil, Colombia, India, Mexico, South Africa, Thailand, and Turkey.     

On the monetary-macro dynamics of Colombia and Mexico

This paper investigates the dynamic interrelationship among money growth, inflation, and output growth for Colombia and Mexico on the basis of implementation of a vector autoregression methodology. The evidence for Colombia generally shows autonomous output growth and money growth behavior, and an important role for money shocks in accounting for variations in inflations. A different pattern of results emerged for Mexico: there are strong two-way feedbacks among money growth and inflation, and a less autonomous output growth behavior than in Colombia.