Macroprudential policy transmission and interaction with fiscal and monetary policy in an emerging economy: a DSGE model for Brazil

We investigate the transmission of macroprudential (MaP) instruments in a dynamic stochastic general equilibrium model where foreign capital flows interact with financial frictions and banks are exposed to different sources of credit default risk. The model is estimated for Brazil with Bayesian techniques. We compute optimal combinations of simple MaP, fiscal and monetary policy rules that can react to the business and/or the financial cycle. We find that the gains from implementing a cyclical fiscal policy are only significant if MaP policy countercyclically reacts to the financial cycle. Optimal fiscal policy is countercyclical in the business cycle.     

When Does Economic Growth Reduce Poverty and Strengthen the Middle Class? A State-Level,Sector-Specific Analysis of Peru

Using novel state-level data of Peru from 1997 to 2010, we investigate how growth in different sectors affects poverty rates and the middle class. Our results indicate that only the manufacturing sector seems to robustly decrease poverty. Growth in the service sector emerges as a meaningful predictor of a rising middle class. Allowing for regional differences, we find substantial variation across the 25 Peruvian states with large shifts in magnitudes, signs, and statistical importance. Beyond the immediate implications for Peru, these findings highlight the importance of analyzing the link between economic performance and poverty rates on a subnational level. Policy implications are likely to differ substantially, depending on the source of economic growth and regional particularities.     

An Empirical Analysis of Mexican Merger Policy

A newly created dataset including 239 decisions made by the Mexican Federal Competition Commission on horizontal mergers is used to estimate the different factors affecting the Commission’s resolution decisions. The decision-making process has been approximated by two different discrete choice models. Our results indicate that, contrary to the Commission’s objective, the presence of efficiency gains increases the probability of a case being challenged. We also find that factors different from the ones explicitly mentioned by the Commission have a significant effect upon the Commission’s final decision. In particular, the presence of a foreign company among the would-be merger firms significantly increases the likelihood of observing an allowed merger.      

Momentum meets value investing in a small European market

In this paper, we investigate two prominent market anomalies documented in the finance literature – the momentum effect and value-growth effect. We conduct an out-of-sample test to the link between these two anomalies recurring to a sample of Portuguese stocks during the period 1988–2015. We find that the momentum of value and growth stocks is significantly different: growth stocks exhibit a much larger momentum than value stocks. A combined value and momentum strategy can generate statistically significant excess annual returns of 10.8%. These findings persist across several holding periods up to a year. Moreover, we show that macroeconomic variables fail to explain value and momentum of individual and combined returns. Collectively, our results contradict market efficiency at the weak form and pose a challenge to existing asset pricing theories.     

Derivatives-based portfolio decisions: an expected utility insight

Annals of Finance - This paper challenges the use of stocks in portfolio construction, instead we demonstrate that Asian derivatives, straddles, or baskets could be more convenient substitutes. Our...