Global financial cycle and Brazil’s financial integration

ABSTRACT

Recent studies have discussed the influence of the global financial cycle on capital flows to emerging and developing countries. This paper evaluates the relationship between the greater degree of financial integration, and macroeconomic performance over the last two decades in Brazil. The literature has highlighted the Brazilian experience as being paradigmatic among emerging countries regarding the relationship between financial integration and regulation of capital flows to deal with boom and bust cycles. Methodologically, we employ a vector autoregressive model with error correction that allows us to evaluate the cointegration between the variables. Our main hypothesis is that a greater degree of financial integration is associated with negative developments in variables such as gross domestic product, country risk, interest rates, and exchange rate volatility. In addition, this study presents a further contribution by observing the existence of the interaction between the consequences of financial integration and the global financial cycle. More specifically, we found that: (i) an increase in the degree of financial integration generates deeper effects in downward periods of the global financial cycle; and (ii) a decline in that cycle generates greater impacts when a higher degree of financial integration is present.     

Optimal Time Interval Selection in Long-Run Correlation Estimation

This paper presents an asymptotically optimal time interval selection criterion for the long-run correlation block estimator (Bartlett kernel estimator) based on the Newey–West and Andrews–Monahan approaches. An alignment criterion that enhances finite-sample performance is also proposed. The procedure offers an optimal alternative to the customary practice in finance and economics of heuristically or arbitrarily choosing time intervals or lags in correlation studies. A Monte Carlo experiment using parameters derived from Dow Jones returns data confirms that the procedure can be MSE-superior to alternatives such as aggregation over arbitrary time intervals, parametric VAR, and Newey–West covariance matrix estimation with automatic lag selection.

     

Structural change: Pace,patterns and determinants

This paper provides a comprehensive assessment of structural change in the world economy. The analysis relies on a newly constructed dataset comprising 169 countries and covering the period from 1991 to 2013. Shapley decompositions are employed to evaluate the pace and pattern of structural change across regions and sub‐regions. Country‐level estimates are then used to conduct an original empirical exercise on the determinants of structural change. The results suggest that labor reallocations (structural change) have played a critical role in enhancing economic performance since the early 2000s, even if they remain comparatively less important than within‐sector productivity improvements. The widespread reallocation of labor from agriculture to the services sectors has been the key driver of structural change. Finally, we find robust evidence that the pace of structural change is significantly shaped by human and physical capital. The policy implication is that investments in education and economic infrastructure are crucial to accelerating structural change.     

CALCULATING WELFARE COSTS OF INFLATION IN A SEARCH MODEL WITH PREFERENCE HETEROGENEITY: A CALIBRATION EXERCISE

Using US cross‐sectional data, this paper calculates the welfare cost of a 10 percent inflation for different individuals and finds that the difference in cost between the poorest 20 percent, measured by their net worth, and the richest 20 percent is in the order of 102 percent. That is, a poor person is on average willing to forgive 102 percent more of their total consumption in order to have inflation reduced from 10 percent to 0. In absolute terms this represents a cost of 0.461 percent of consumption for the poorest and 0.228 percent for the richest. I accomplish this by introducing preference heterogeneity in a monetary search model first developed by Lagos and Wright, and calibrate the model to match each agent's type of cash holdings, approximated by their holdings in transactional accounts that bear almost no interest, as a fraction of their net worth using data from the Survey of Consumer Finances. I also show that this welfare difference increases to 130 percent (2.28 percent for the poorest 20 percent and 0.992 percent for the richest 20 percent) whenever frictions in the use of money are imposed (holdup problem). This distributional effect is further augmented if more frictions in the terms of trade are present. The ability to explicitly model these frictions is the advantage of using this model. Hence, inflation in this framework, as other studies have shown, acts as a regressive consumption tax; and this regressiveness is augmented with the holdup problem.     

Environmental impacts of commuting modes in Lisbon: A life-cycle assessment addressing particulate matter impacts on health

A life-cycle assessment of commuting alternatives is conducted that compares six transportation modes (car, bus, train, subway, motorcycle, and bicycle) for eight impact indicators. Fine particulate matter (PM_2.5) emissions and health impacts are incorporated in the assessment using intake fractions that differentiate between urban and nonurban emissions, combined with an effect factor. The potential benefits of different strategies for reducing environmental impacts are illustrated. The results demonstrate the need for comprehensive approaches that avoid problem-shifting among transportation-related strategies. Policies aiming to improve the environmental performance of urban transportation should target strategies that decrease local emissions, life-cycle impacts and health effects.     

Knowledge of vitamin A deficiency and crop adoption: Evidence from a field experiment in Mozambique

Vitamin A deficiency is a widespread public health problem in Sub-Saharan Africa. This paper analyzes the impact of an intervention fighting vitamin A deficiency through the promotion of production and consumption of orange-fleshed sweet potato (OFSP). We conducted a randomized evaluation of OFSP-related training to female farmers in Mozambique, who were also the primary caretakers of preschool children. The treatment consisted of group and individual-level training where basic knowledge about nutrition was taught, and planting and cooking skills related specifically to OFSP were developed. We find considerable increases in nutrition-related knowledge, as well as knowledge about cooking and planting OFSP, which persist after more than a year. We also observe clear evidence of adoption of OFSP for production in the short- and medium-run, which spreads through social networks.     

Overreaction to extreme market events and investor sentiment

This article investigates the role of investor psychology, captured here by investor sentiment index, in driving individual stock price reactions to extreme movements in the broader market. In addition to confirming prior evidence of overreaction, we find much stronger overreaction when investor sentiment is low rather than high. This is consistent with the role of the contrast dimension of an uncommon event, suggested in the psychology literature, over and above the emotion of surprise it brings about. In a low sentiment environment, the contrast is sharper and hence leads to stronger overreaction.     

Green growth versus economic growth: Do sustainable technology transfer and innovations lead to an imperfect choice?

A concern with the mitigation of climate change cuts a transversal line across economic agents, epitomized by two contradictory viewpoints. Some defend that green growth can be achieved without harming economic growth; others argue that it is not possible to respect sustainability if intensive consumption of goods continues to foster economic growth. Our research aims to analyze the role that sustainable technology transfer and sustainable innovations play in green growth and ascertain the impact of green growth on economic growth. We use aggregated country-level data provided by the OECD, including national accounts, population, and environment statistics (including patents) between 1990 and 2013 for 32 countries, corresponding to an unbalanced panel of 591 observations. We estimate econometric models based on dynamic panel methodologies to capture differences that exist over time. The results show that sustainable technology transfer and sustainable innovation promote green growth, which in turn positively impacts economic growth. We contribute new insight to the green growth versus economic growth debate and provide several political and management implications.     

Structural social capital and knowledge acquisition: implications of cluster membership

This paper analyzes the implications of belonging to a cluster through the relationship between structural social capital and knowledge acquisition. The findings suggest structural social capital only indirectly affects knowledge acquisition through the relational and cognitive dimensions of firms’ membership of a cluster. However, the structural dimension also has a direct impact on knowledge for external firms outside a cluster. This paper contributes to the cluster literature with a better contextualization and understanding of the relationship between structural social capital and knowledge acquisition. In addition, the paper also consolidates the inter-organizational approach to social capital theory by helping to understand how and in what context social capital dimensions are interrelated. The study analyzes how firms can acquire valuable knowledge from their networks, filling the gap in the literature on how this process occurs inside and outside clusters. This works also proposes recommendations for companies and institutions, and new complementary lines of research.     

A Dynamic Approach to Accounts Receivable: a Study of Spanish SMEs

The main objective of this paper is to extend the literature on the granting of trade credit. The focus is to test whether the accounts receivable decisions follow a model of partial adjustment. To do that, we use a sample of 2,922 Spanish SMEs. Using a dynamic panel data model and employing the GMM method of estimation we control for unobservable heterogeneity and for potential endogeneity problems. The results reveal that firms have a target level of accounts receivable and take decisions in order to achieve that level. In addition, we find that sales growth (if positive), the size of the firms, their capacity to generate internal funds and get short term financing, and economic growth are important in determining trade credit granted by firms.