The Effectiveness of Capital Controls: Theory and Evidence from Chile

Selective capital controls tax only some components of capital flows. One of the rationales for such controls is that they increase the scope for an independent monetary policy, without taxing foreign direct investment and other long term flows. The first part of this paper offers a new framework to evaluate how selective capital controls might increase monetary autonomy, which considers two types of capital flows that coexist: the taxed and exempt flows. It is found that under free floating selective controls increase monetary autonomy, in the sense of allowing the authorities to set the path of the nominal exchange rate. But under predetermined exchange rate rules, the contribution of selective controls to monetary autonomy depends of the ability to reduce total inflows, which is an empirical matter. The second part describes the Chilean unremunerated reserve requirement (URR), a selective control introduced in June 1991 on a permanent basis, in a setting of predetermined exchange rates. This control collected substantial revenue, proving that it was relevant. An econometric model with data for 1987–1996 finds that substitution from the exempt short-term flows compensated reductions in taxed short-term flows, so the Chilean URR did not discourage total net short-term credit inflows to the private sector. This implies that the Chilean URR failed to contribute to monetary autonomy.     

On the short-run effects of labor market reforms

While several countries have recognized the need of introducing flexibility to their labor markets, there are different ways of doing so. Using a small open economy with tenure-dependent separation taxes, this paper compares introducing a full reform with two partial alternatives: (1) the introduction of temporary contracts, and (2) the elimination of separation costs from all new hires while freezing them on the workers that were hired prior to the reform. The first alternative can achieve a first-best long run outcome but leads to a sharp initial recession. The second alternative generates a similar long run outcome but avoids the recessionary adjustment.     

Entrepreneurial capacities as antecedents of business performance in Brazilian firms

We investigate the relationship between entrepreneurial capacities and firm performance. More specifically, we investigate the effects of radical innovation and learning orientation on business performance. We test the effects of entrepreneurial orientation on learning orientation and radical innovation. The results suggest that radical product innovation and companies' orientation to learn have a positive effect on organizational performance. Additionally, we find that entrepreneurial orientation positively influences a firm's capability to learn and innovate. Our findings also show a direct effect of learning orientation on radical innovation, which means that companies with a higher proclivity to learn are more likely to create products and processes, representing a major departure from the state of current knowledge. Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd.     

Evaluating the risk premium in the U.S.A. natural gas market: evidence from low-price regime

In recent years, the U.S.A. natural gas market has seen enormous changes. The expectations of abundant supply of shale gas and the slow U.S.A. economic recovery have pushed gas prices below US$ 4 MMBtu. Although shale gas is a new promising source of unconventional energy, investors face uncertain investment plans. In this study, we investigate the risk premium by comparing behaviour before and after the change point in agents risk perception. Unlike traditional empirical research on risk premium, we use the parametric, two-factor model of Schwartz and Smith (2000) to evaluate the implied risk premium term structure from futures prices traded on the New York Mercantile Exchange (NYMEX). We compare our findings with other empirical results and find that the change point lies at the beginning of the low-price regime. When we compare periods before and after the change point, we observe that the risk premium changed, not only in sign, but also in magnitude.     

Dynamic Entry and Exit Linkages in the Brazilian Manufacturing Industry: An Econometric Investigation

The paper investigates dynamic linkages between entry and exit rates in Brazilian manufacturing in the context of 231 (four-digit) industries during the 1996–2005 period. The empirical analysis focuses on the estimation of a dynamic panel data model for entry and exit rates, and controls for the business cycle and structural characteristics, such as industrial concentration and suboptimal scale. The empirical evidence is partially consistent with a multiplier effect where synergetic factors prevail by exit inducing exit. Evidence partially supports a competition effect that could be related to a selection process favoring efficiency, as exit induces entry. The business cycle control variable and the aforementioned structural variables appear to play no role in delineating entry and exit linkages. The results are similar, although not identical, to previous evidence for developed countries.     

A dynamic monetary model with costly foreign currency

I present a dynamic general equilibrium monetary model with domestic and foreign currencies and a traded bond where there is an adjustment cost to switch into foreign currency. The focus is on the short versus long run trade-offs and transitional dynamics of domestic and foreign monetary disturbances as a function of attributes of currencies in utility. The main finding is that short and long run trade-offs and transitional dynamics together with the implied hysteresis property of the equilibrium are critical determinants of the qualitative results of domestic and foreign monetary disturbances in this class of model.     

Inflation targeting in Brazil: constructing credibility under exchange rate volatility

This paper assesses the challenges faced by the inflation-targeting regime in Brazil. The inflation-targeting framework has played a critical role in macroeconomic stabilization. We stress two important challenges: construction of credibility and exchange rate volatility. The estimations indicate the following results: (i) the inflation targets have worked as an important coordinator of expectations; (ii) the Central Bank has reacted strongly to inflation expectations; (iii) there has been a reduction in the degree of inflation persistence; and (iv) the exchange rate pass-through for “administered or monitored” prices is two times higher than for “market” prices.     

On the determinants of inequality in Bosnia and Herzegovina

We provide empirical evidence on the determinants of income inequality in Bosnia and Herzegovina after the civil war. To do this, we use a an ordered probit approach and take advantage of the first post‐war household survey for the country which sheds some light on the influence of regional differences as well as household characteristics on income quintile determination. With respect to the former, we find large income differences between the two entities in the country, the Federation and Republika Srpska. Such income differences are also noticeable inside entities. On the latter, there are some signs that education, experience, and employment, among others, may help reduce the probability of income decline. Our results are robust to changes of specification as shown by applying a formal sensitivity analysis. JEL classification: O15, O10, I30.     

Income distribution,basic needs and trade-offs with growth: The case of semi-industrialized Latin American countries

This paper addresses income distribution issues and policy options to eliminate extreme poverty in a particular typology of middle-income semi-industrialized developing countries of Latin America. The countries included in the typology are characterized by a relatively high per capita income (above US$700/yr in 1977), a relatively high degree of industrialization (industry representing over 30% of GNP), a rather large size both in population and area, and relatively well endowed resources in agriculture. A distinctive feature is a strong inequality in the distribution of income and wealth relative to other countries of similar levels of per capita income. The countries included are Brazil, Columbia, Ecuador, Mexico and Peru, representing two-thirds of the population of that region.