Pub Date : 2024-11-09DOI: 10.1016/j.latcb.2024.100158
Antonio Sánchez Serrano
The core financial intermediation function of banks, providing loans and taking deposits, is closely related to the level of interest rates. We construct a simplified balance sheet of a representative bank and assess how increases in interest rates may affect its profitability (through changes in net interest income, the fair value of financial assets, and credit losses) as well as the market value of its assets and liabilities (i.e., market value of equity). Using a sample of 103 EU banks from the 2022 EBA Transparency Exercise, we find that, mainly on account of higher net interest income, higher interest rates increase bank profits, with an inverted-U shaped curve over time. There is however a non-negligible share of banks reporting losses, mainly because of their high share of loans at fixed-rates or of debt securities at fair value. Looking at the market value of equity, it declines for most of the banks in our sample, confirming the negative relation between interest rates and banks’ assets and liabilities.
{"title":"Banks in an environment of higher interest rates","authors":"Antonio Sánchez Serrano","doi":"10.1016/j.latcb.2024.100158","DOIUrl":"10.1016/j.latcb.2024.100158","url":null,"abstract":"<div><div>The core financial intermediation function of banks, providing loans and taking deposits, is closely related to the level of interest rates. We construct a simplified balance sheet of a representative bank and assess how increases in interest rates may affect its profitability (through changes in net interest income, the fair value of financial assets, and credit losses) as well as the market value of its assets and liabilities (i.e., market value of equity). Using a sample of 103 EU banks from the 2022 EBA Transparency Exercise, we find that, mainly on account of higher net interest income, higher interest rates increase bank profits, with an inverted-U shaped curve over time. There is however a non-negligible share of banks reporting losses, mainly because of their high share of loans at fixed-rates or of debt securities at fair value. Looking at the market value of equity, it declines for most of the banks in our sample, confirming the negative relation between interest rates and banks’ assets and liabilities.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 4","pages":"Article 100158"},"PeriodicalIF":1.3,"publicationDate":"2024-11-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145327136","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-05DOI: 10.1016/j.latcb.2024.100155
Irene Alvarado-Quesada , Jose Pablo Barquero-Romero , Cristian Sancho-Brenes
This study examines, for the first time, the exposure of the credit portfolio of the banking system in Costa Rica to hydrometeorological events, specifically excess rainfall events, with a focus on firm credit at the canton level. We propose a credit risk indicator to identify cantons with credit portfolios that are more affected by rainfall events. Moreover, we introduce a novel approach with respect to firm level data to assign a single productive location to firms with two or more establishments. We find that cantons with the highest number of excess rainfall events represent a small share of the average credit balance of the country. Furthermore, we observe that the top three cantons with the highest credit risk score are driven by economic activities that are not expected to be notably vulnerable to extreme rainfall.
{"title":"Assessment of the banking sector's exposure to hydrometeorological events in Costa Rica","authors":"Irene Alvarado-Quesada , Jose Pablo Barquero-Romero , Cristian Sancho-Brenes","doi":"10.1016/j.latcb.2024.100155","DOIUrl":"10.1016/j.latcb.2024.100155","url":null,"abstract":"<div><div>This study examines, for the first time, the exposure of the credit portfolio of the banking system in Costa Rica to hydrometeorological events, specifically excess rainfall events, with a focus on firm credit at the canton level. We propose a credit risk indicator to identify cantons with credit portfolios that are more affected by rainfall events. Moreover, we introduce a novel approach with respect to firm level data to assign a single productive location to firms with two or more establishments. We find that cantons with the highest number of excess rainfall events represent a small share of the average credit balance of the country. Furthermore, we observe that the top three cantons with the highest credit risk score are driven by economic activities that are not expected to be notably vulnerable to extreme rainfall.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 3","pages":"Article 100155"},"PeriodicalIF":1.3,"publicationDate":"2024-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144867015","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-10-02DOI: 10.1016/j.latcb.2024.100154
Jean Christine A. Armas , Nerissa D. De Guzman
This paper extends the IMF's financial development index by incorporating a stability dimension for the Philippines, creating a multi-dimensional measure. Using principal components analysis, we construct quarterly indices for Q1 2009 to Q4 2020 that assess development across Philippine financial institutions and markets. The study finds that access, depth, efficiency, and stability are distinct dimensions of financial development. These dimensions serve as valuable tools for identifying potential fragilities in the Philippine financial system. Furthermore, our results indicate that the financial sector has advanced over time, even during the global pandemic, with the Bangko Sentral ng Pilipinas' timely policy responses mitigating potential adverse impacts.
{"title":"Introducing a multi-dimensional financial development index for the Philippines","authors":"Jean Christine A. Armas , Nerissa D. De Guzman","doi":"10.1016/j.latcb.2024.100154","DOIUrl":"10.1016/j.latcb.2024.100154","url":null,"abstract":"<div><div>This paper extends the IMF's financial development index by incorporating a stability dimension for the Philippines, creating a multi-dimensional measure. Using principal components analysis, we construct quarterly indices for Q1 2009 to Q4 2020 that assess development across Philippine financial institutions and markets. The study finds that access, depth, efficiency, and stability are distinct dimensions of financial development. These dimensions serve as valuable tools for identifying potential fragilities in the Philippine financial system. Furthermore, our results indicate that the financial sector has advanced over time, even during the global pandemic, with the Bangko Sentral ng Pilipinas' timely policy responses mitigating potential adverse impacts.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 4","pages":"Article 100154"},"PeriodicalIF":1.3,"publicationDate":"2024-10-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145327138","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-09-17DOI: 10.1016/j.latcb.2024.100153
Perumbalath Shamshadali, C.P. Abdul Gafoor, Phungkha Daimari
Banking crises, marked by catastrophic loan losses and systemic collapse, wield unparalleled influence over economic stability and societal well-being. Despite extensive research efforts on investigations related to banking crises, the current literature lacks a systemic analysis of scholarly published articles. The present study aims to bridge this gap by analyzing scholarly literature on banking crises using bibliometric data from Scopus from 1969 to June 2024. Using the bibliometric toolbox's performance and science mapping techniques, we map the research landscape, highlighting key contributors and trends in banking crisis research. The contributors are the United States, the International Monetary Fund, the National Natural Science Foundation of China, and the Journal of Banking and Finance from Elsevier publishers. Furthermore, we identify the focal areas of research in banking crises. Finally, we anticipate that future research in banking crises should focus on the applications of machine learning, banking regulations, bank supervision, random forest, risk perception, the impact of the COVID-19 pandemic, democracy, corruption, financialization, fiscal consolidation, and the role of institutions such as Silicon Valley Bank. The findings of the study support regulators, researchers, policymakers, and research funding institutions in fostering collaboration and prioritizing research areas.
{"title":"Mapping the future of banking crisis research: Key contributors and emerging areas","authors":"Perumbalath Shamshadali, C.P. Abdul Gafoor, Phungkha Daimari","doi":"10.1016/j.latcb.2024.100153","DOIUrl":"10.1016/j.latcb.2024.100153","url":null,"abstract":"<div><div>Banking crises, marked by catastrophic loan losses and systemic collapse, wield unparalleled influence over economic stability and societal well-being. Despite extensive research efforts on investigations related to banking crises, the current literature lacks a systemic analysis of scholarly published articles. The present study aims to bridge this gap by analyzing scholarly literature on banking crises using bibliometric data from Scopus from 1969 to June 2024. Using the bibliometric toolbox's performance and science mapping techniques, we map the research landscape, highlighting key contributors and trends in banking crisis research. The contributors are the United States, the International Monetary Fund, the National Natural Science Foundation of China, and the Journal of Banking and Finance from Elsevier publishers. Furthermore, we identify the focal areas of research in banking crises. Finally, we anticipate that future research in banking crises should focus on the applications of machine learning, banking regulations, bank supervision, random forest, risk perception, the impact of the COVID-19 pandemic, democracy, corruption, financialization, fiscal consolidation, and the role of institutions such as Silicon Valley Bank. The findings of the study support regulators, researchers, policymakers, and research funding institutions in fostering collaboration and prioritizing research areas.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 4","pages":"Article 100153"},"PeriodicalIF":1.3,"publicationDate":"2024-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145327139","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-09-02DOI: 10.1016/j.latcb.2024.100152
Carlos A. Arango-Arango, Yanneth Rocío Betancourt-García
In this paper, we study the coexistence of cash and electronic payments introducing some distortions in the payments markets to understand the widespread use of cash, specially in emerging countries. Following Lagos and Wright (2005) we model explicitly some frictions in the exchange process considering money as essential. We introduce in this theoretical framework, theft and informality (measured by tax evasion), as factors affecting cash usage and, therefore competition with an electronic payment method. In this paper, segmentation in the payments market is considered by introducing heterogeneity in the seller’s side, assuming different levels of productivity to explain the preference for cash or for electronic payments. Considering the above, the provision of the electronic payment platform is modeled under three different market structures to identify the effects of the distortions comparing the results with the social planner solution. In the first case, the electronic payment platform is provided by a public firm as a free service; in the second case a private monopoly provides the platform at a positive cost, and in the third case the conditions for the existence of a mixed duopoly are derived. The existence of a public provider in the electronic payments market could lead private networks to provide these services at a lower cost than in the monopoly case, increasing the coverage of digital payments and reducing cash usage, which implies gains in social welfare. This paper gives a theoretical basis and key insights to the discussions regarding public provision of new payment services when the market is already served by private suppliers.
{"title":"A mixed duopoly in the provision of payment services","authors":"Carlos A. Arango-Arango, Yanneth Rocío Betancourt-García","doi":"10.1016/j.latcb.2024.100152","DOIUrl":"10.1016/j.latcb.2024.100152","url":null,"abstract":"<div><div>In this paper, we study the coexistence of cash and electronic payments introducing some distortions in the payments markets to understand the widespread use of cash, specially in emerging countries. Following Lagos and Wright (2005) we model explicitly some frictions in the exchange process considering money as essential. We introduce in this theoretical framework, theft and informality (measured by tax evasion), as factors affecting cash usage and, therefore competition with an electronic payment method. In this paper, segmentation in the payments market is considered by introducing heterogeneity in the seller’s side, assuming different levels of productivity to explain the preference for cash or for electronic payments. Considering the above, the provision of the electronic payment platform is modeled under three different market structures to identify the effects of the distortions comparing the results with the social planner solution. In the first case, the electronic payment platform is provided by a public firm as a free service; in the second case a private monopoly provides the platform at a positive cost, and in the third case the conditions for the existence of a mixed duopoly are derived. The existence of a public provider in the electronic payments market could lead private networks to provide these services at a lower cost than in the monopoly case, increasing the coverage of digital payments and reducing cash usage, which implies gains in social welfare. This paper gives a theoretical basis and key insights to the discussions regarding public provision of new payment services when the market is already served by private suppliers.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 4","pages":"Article 100152"},"PeriodicalIF":1.3,"publicationDate":"2024-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145327135","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-08-13DOI: 10.1016/j.latcb.2024.100151
Rong Fan , Todd B. Walker , Allan Wright
This paper examines how the introduction of Central Bank Digital Currency (CBDC) impacts small open economies (SOE). We build a Two-Agent New Keynesian (TANK) model with financially constrained agents, where both cash and CBDC provide liquidity service. CBDC lowers the cost of carrying liquid assets but does not provides anonymity like cash. Our main results are: (i) CBDC always increases the welfare of financially unconstrained households; however, it increases the welfare of constrained households when the cost of carrying cash is high enough and when the government purchase level is sufficiently low; (ii) CBDC increases the fiscal income by bringing more agents out of the informal economy, improving fiscal sustainability; (iii) CBDC improves the terms of trade as it strengthens the domestic currency.
{"title":"Central bank digital currency in small open economies","authors":"Rong Fan , Todd B. Walker , Allan Wright","doi":"10.1016/j.latcb.2024.100151","DOIUrl":"10.1016/j.latcb.2024.100151","url":null,"abstract":"<div><div>This paper examines how the introduction of Central Bank Digital Currency (CBDC) impacts small open economies (SOE). We build a Two-Agent New Keynesian (TANK) model with financially constrained agents, where both cash and CBDC provide liquidity service. CBDC lowers the cost of carrying liquid assets but does not provides anonymity like cash. Our main results are: (i) CBDC always increases the welfare of financially unconstrained households; however, it increases the welfare of constrained households when the cost of carrying cash is high enough and when the government purchase level is sufficiently low; (ii) CBDC increases the fiscal income by bringing more agents out of the informal economy, improving fiscal sustainability; (iii) CBDC improves the terms of trade as it strengthens the domestic currency.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 2","pages":"Article 100151"},"PeriodicalIF":0.0,"publicationDate":"2024-08-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144167231","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-08-06DOI: 10.1016/j.latcb.2024.100146
Felipe Beltrán, Luigi Durand, Mario González-Frugone, Javier Moreno
The study of energy and climate has become of primary relevance for policymakers in central banks and other institutions. Current analyses for Chile suggest medium to strong direct physical effects, with some studies pointing to relatively higher impacts in the northern and central regions. Also, indirect effects, such as those originating from green transitions around the world, are likely to be significant. This paper provides a brief review of the effects that climate change may have on the economy and describes efforts made by the Central Bank of Chile to gain a better understanding of these effects. These efforts include: geo-referencing of assets and the primary physical risks they face, characterization of the transmission channels through which climate risks can propagate, a better estimation of the uncertainty of climatic events and the development of new general equilibrium models.
{"title":"A preliminary assessment of the economic effects of energy and climate in Chile","authors":"Felipe Beltrán, Luigi Durand, Mario González-Frugone, Javier Moreno","doi":"10.1016/j.latcb.2024.100146","DOIUrl":"10.1016/j.latcb.2024.100146","url":null,"abstract":"<div><div>The study of energy and climate has become of primary relevance for policymakers in central banks and other institutions. Current analyses for Chile suggest medium to strong direct physical effects, with some studies pointing to relatively higher impacts in the northern and central regions. Also, indirect effects, such as those originating from green transitions around the world, are likely to be significant. This paper provides a brief review of the effects that climate change may have on the economy and describes efforts made by the Central Bank of Chile to gain a better understanding of these effects. These efforts include: geo-referencing of assets and the primary physical risks they face, characterization of the transmission channels through which climate risks can propagate, a better estimation of the uncertainty of climatic events and the development of new general equilibrium models.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 3","pages":"Article 100146"},"PeriodicalIF":1.3,"publicationDate":"2024-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144867014","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-27DOI: 10.1016/j.latcb.2024.100144
Jesús Bejarano, Daniela Rodríguez
This policy note analyses the impacts of climate change on a small and open economy, emphasizing its effect on monetary policy. We use a New-Keynesian model to evaluate short- and long-term effects of transition climate change shocks – a permanent and anticipated shock to total factor productivity and an increase in carbon taxes – on main macroeconomic variables, such as potential output, natural interest rate, inflation, and real exchange rate. The results suggest a gradual decline in potential output attributable to climate change, leading to increased production costs. Regarding the short term, the natural interest rate and inflation decrease. The timing of climate change effects on productivity will dictate the extent of their impacts and the response required from monetary policy. In a small and open economy such as Colombia, carbon taxes have a quantitatively low impact on macroeconomic variables in both the short and long run.
{"title":"The effects of climate change on a small and open economy: Economic and monetary perspectives","authors":"Jesús Bejarano, Daniela Rodríguez","doi":"10.1016/j.latcb.2024.100144","DOIUrl":"10.1016/j.latcb.2024.100144","url":null,"abstract":"<div><div>This policy note analyses the impacts of climate change on a small and open economy, emphasizing its effect on monetary policy. We use a New-Keynesian model to evaluate short- and long-term effects of transition climate change shocks – a permanent and anticipated shock to total factor productivity and an increase in carbon taxes – on main macroeconomic variables, such as potential output, natural interest rate, inflation, and real exchange rate. The results suggest a gradual decline in potential output attributable to climate change, leading to increased production costs. Regarding the short term, the natural interest rate and inflation decrease. The timing of climate change effects on productivity will dictate the extent of their impacts and the response required from monetary policy. In a small and open economy such as Colombia, carbon taxes have a quantitatively low impact on macroeconomic variables in both the short and long run.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 3","pages":"Article 100144"},"PeriodicalIF":1.3,"publicationDate":"2024-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141840742","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-14DOI: 10.1016/j.latcb.2024.100149
Alvin E. Harris, Prudence Serju-Thomas
This paper uses Bayesian VAR Analysis to empirically evaluate the relationship between the deviations of the real effective exchange rate from its equilibrium and Jamaica's GDP (and its components) over the period 1998 to 2021. The paper finds that an appreciation in the real exchange rate is generally associated with a fall in Jamaica's GDP, but the impact is small and statistically insignificant. However, this paper finds evidence that an appreciation hurts the trade balance of goods and the export of goods and services. The paper also finds that the tourism industry is resilient to losses in competitiveness, which may reflect the impact of factors that are not captured in our model.
{"title":"Real exchange rate and economic activity in Jamaica","authors":"Alvin E. Harris, Prudence Serju-Thomas","doi":"10.1016/j.latcb.2024.100149","DOIUrl":"10.1016/j.latcb.2024.100149","url":null,"abstract":"<div><div>This paper uses Bayesian VAR Analysis to empirically evaluate the relationship between the deviations of the real effective exchange rate from its equilibrium and Jamaica's GDP (and its components) over the period 1998 to 2021. The paper finds that an appreciation in the real exchange rate is generally associated with a fall in Jamaica's GDP, but the impact is small and statistically insignificant. However, this paper finds evidence that an appreciation hurts the trade balance of goods and the export of goods and services. The paper also finds that the tourism industry is resilient to losses in competitiveness, which may reflect the impact of factors that are not captured in our model.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 4","pages":"Article 100149"},"PeriodicalIF":1.3,"publicationDate":"2024-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141709659","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-09DOI: 10.1016/j.latcb.2024.100145
Marcos Valli Jorge, Angelo M Fasolo, Silvio Michael de Azevedo Costa
This paper examines the dynamic behavior of the Brazilian economy under policy regimes aimed at controlling pollutant emissions and limiting environmental damage. Greenhouse gas (GHG) emissions are assumed to be of two types: carbon from fossil resources burning for energy generation (i.e., thermoelectric) or carbon and non-carbon outputs from production processes (i.e., methane from cattle). Firms optimally decide on the demand for fossil and green energy, as the level of effort dedicated to abating emissions coming from production processes. Two alternative policies for emissions, which include emissions taxation (fixed cost) and emission permits trade (quantity caps), are introduced into an open-economy DSGE model for the Brazilian economy. Departing from the estimated parameters of the original version of the model, ratios in the new block of equations for the energy and emissions are calibrated using sectoral data, and some elasticities are set to reproduce the sensibility to some shocks implicit in the NGFS1 scenarios (Net Zero 2050). Simulations indicate neither of the emissions policies can induce transition in the energy matrix without a green investment policy. The approach adopted here is a first step in building a macroeconomic model capable of challenging scenarios from more specialized models dedicated to energy and emissions by better assessing possible effects and feedback related to the iterations with macroeconomic dynamics. Despite the difficulties concerning the limited availability of data in higher frequency, results indicate those modeling approaches are sufficiently flexible to incorporate the main aspects of energy and emission, serving as valuable tools for policy analysis.
{"title":"Mitigating policies for pollutant emissions in a DSGE for the Brazilian economy","authors":"Marcos Valli Jorge, Angelo M Fasolo, Silvio Michael de Azevedo Costa","doi":"10.1016/j.latcb.2024.100145","DOIUrl":"10.1016/j.latcb.2024.100145","url":null,"abstract":"<div><div>This paper examines the dynamic behavior of the Brazilian economy under policy regimes aimed at controlling pollutant emissions and limiting environmental damage. Greenhouse gas (GHG) emissions are assumed to be of two types: carbon from fossil resources burning for energy generation (i.e., thermoelectric) or carbon and non-carbon outputs from production processes (i.e., methane from cattle). Firms optimally decide on the demand for fossil and green energy, as the level of effort dedicated to abating emissions coming from production processes. Two alternative policies for emissions, which include emissions taxation (fixed cost) and emission permits trade (quantity caps), are introduced into an open-economy DSGE model for the Brazilian economy. Departing from the estimated parameters of the original version of the model, ratios in the new block of equations for the energy and emissions are calibrated using sectoral data, and some elasticities are set to reproduce the sensibility to some shocks implicit in the NGFS<span><span><sup>1</sup></span></span> scenarios (Net Zero 2050). Simulations indicate neither of the emissions policies can induce transition in the energy matrix without a green investment policy. The approach adopted here is a first step in building a macroeconomic model capable of challenging scenarios from more specialized models dedicated to energy and emissions by better assessing possible effects and feedback related to the iterations with macroeconomic dynamics. Despite the difficulties concerning the limited availability of data in higher frequency, results indicate those modeling approaches are sufficiently flexible to incorporate the main aspects of energy and emission, serving as valuable tools for policy analysis.</div></div>","PeriodicalId":100867,"journal":{"name":"Latin American Journal of Central Banking","volume":"6 3","pages":"Article 100145"},"PeriodicalIF":1.3,"publicationDate":"2024-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141693248","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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