Pub Date : 2015-10-05DOI: 10.12660/BRE.V35N12015.24305
M. C. Medeiros, Priscilla Burity, J. Assunção
This paper proposes a semiparametric approach to control for unobserved heterogeneity in linear regression models, based on an artificial neural network extremum estimator. We present a procedure to specify the model and use simulations to evaluate its finite sample properties in comparison to alternative methods. The simulations show that our approach is less sensitive to increases in the dimensionality and complexity of the problem. We also use the model to study convergence of per capita income across Brazilian municipalities.
{"title":"Unobserved Heterogeneity in Regression Models: A Semiparametric Approach Based on Nonlinear Sieves","authors":"M. C. Medeiros, Priscilla Burity, J. Assunção","doi":"10.12660/BRE.V35N12015.24305","DOIUrl":"https://doi.org/10.12660/BRE.V35N12015.24305","url":null,"abstract":"This paper proposes a semiparametric approach to control for unobserved heterogeneity in linear regression models, based on an artificial neural network extremum estimator. We present a procedure to specify the model and use simulations to evaluate its finite sample properties in comparison to alternative methods. The simulations show that our approach is less sensitive to increases in the dimensionality and complexity of the problem. We also use the model to study convergence of per capita income across Brazilian municipalities.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132908959","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 : 2015-09-17DOI: 10.12660/BRE.V99N992016.52273
M. C. Medeiros, Gabriel F. R. Vasconcelos, Eduardo Freitas
In this paper we use high-dimensional models, estimated by the Least Absolute Shrinkage and Selection Operator (LASSO), to forecast the Brazilian inflation. The models are compared to benchmark specifications such as linear autoregressive (AR) and the factor models based on principal components. Our results showed that the LASSO-based specifications have the smallest errors for short-horizon forecasts. However, for long horizons the AR benchmark is the best model with respect to point forecasts. The factor model also produces some good long horizon forecasts in a few cases. We estimated all the models for the two most important Brazilian inflation measures, the IPCA and the IGP-M indexes. The results also showed that there are differences on the selected variables for both measures. Finally, the most important variables selected by the LASSO based models are, in general, related to government debt and money. On the other hand, variables such as unemployment and production were rarely selected by the LASSO.
{"title":"Forecasting Brazilian Inflation with High-Dimensional Models","authors":"M. C. Medeiros, Gabriel F. R. Vasconcelos, Eduardo Freitas","doi":"10.12660/BRE.V99N992016.52273","DOIUrl":"https://doi.org/10.12660/BRE.V99N992016.52273","url":null,"abstract":"In this paper we use high-dimensional models, estimated by the Least Absolute Shrinkage and Selection Operator (LASSO), to forecast the Brazilian inflation. The models are compared to benchmark specifications such as linear autoregressive (AR) and the factor models based on principal components. Our results showed that the LASSO-based specifications have the smallest errors for short-horizon forecasts. However, for long horizons the AR benchmark is the best model with respect to point forecasts. The factor model also produces some good long horizon forecasts in a few cases. We estimated all the models for the two most important Brazilian inflation measures, the IPCA and the IGP-M indexes. The results also showed that there are differences on the selected variables for both measures. Finally, the most important variables selected by the LASSO based models are, in general, related to government debt and money. On the other hand, variables such as unemployment and production were rarely selected by the LASSO.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114928828","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 : 2015-06-24DOI: 10.12660/BRE.V99N992016.47740
Flávia Chein, J. Assunção
We study the impact of emigration on local labor markets, based on the construction of a 1,087km road in northeastern Brazil. The new road has changed population substantially, creating new cities along its path and increasing internal migration flows. We first use a reduced-form approach to estimate the effect of emigration on skill groups (defined by education and experience) - a 10 percentage point increase in the proportion of emigrants raises wages by 5%. Then, using a structural approach, we estimate cross effects among groups - although emigration typically raises wages, complementary effects determine negative impacts in some municipalities.
{"title":"How does Emigration affect Labor Markets? Evidence from Road Construction in Brazil","authors":"Flávia Chein, J. Assunção","doi":"10.12660/BRE.V99N992016.47740","DOIUrl":"https://doi.org/10.12660/BRE.V99N992016.47740","url":null,"abstract":"We study the impact of emigration on local labor markets, based on the construction of a 1,087km road in northeastern Brazil. The new road has changed population substantially, creating new cities along its path and increasing internal migration flows. We first use a reduced-form approach to estimate the effect of emigration on skill groups (defined by education and experience) - a 10 percentage point increase in the proportion of emigrants raises wages by 5%. Then, using a structural approach, we estimate cross effects among groups - although emigration typically raises wages, complementary effects determine negative impacts in some municipalities.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"202 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128404016","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 : 2015-06-24DOI: 10.12660/BRE.V99N992016.46421
Francisco Santos, M. Garcia, M. C. Medeiros
The estimation of the impact of macroeconomic announcements in the Brazilian futures markets is used to uncover the relationship between macroeconomic fundamentals and asset prices. Using intraday data from October 2008 to January 2011, we find that external macroeconomic announcements dominate price changes in the Foreign Exchange and Ibovespa markets, while the impact of the domestic ones is mainly restricted to Interest Rate contracts. We additionally propose an investment strategy based on the conditional price reaction of each market that achieved a success rate of 70% in an out-of-sample study. Finally, we document the impact on volume and bid-ask spreads.
{"title":"The High Frequency Impact of Macroeconomic Announcements in the Brazilian Futures Markets","authors":"Francisco Santos, M. Garcia, M. C. Medeiros","doi":"10.12660/BRE.V99N992016.46421","DOIUrl":"https://doi.org/10.12660/BRE.V99N992016.46421","url":null,"abstract":"The estimation of the impact of macroeconomic announcements in the Brazilian futures markets is used to uncover the relationship between macroeconomic fundamentals and asset prices. Using intraday data from October 2008 to January 2011, we find that external macroeconomic announcements dominate price changes in the Foreign Exchange and Ibovespa markets, while the impact of the domestic ones is mainly restricted to Interest Rate contracts. We additionally propose an investment strategy based on the conditional price reaction of each market that achieved a success rate of 70% in an out-of-sample study. Finally, we document the impact on volume and bid-ask spreads.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"02 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130416624","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 : 2015-06-16DOI: 10.12660/BRE.V36N12016.45406
José Renato Haas Ornelas
This paper empirically evaluates Risk-Neutral Densities (RND) and Real-World Densities (RWD) as predictors of emerging markets currencies. The dataset consists of volatility surfaces from 11 emerging market currencies, with approximately six years of daily data, using options with one-month expiration. Therefore, there is a strong overlapping in data, which is tackled with specific econometric techniques. Results of the out-of-sample assessment show that both RND and RWD underweight the tails of the actual distribution. This is probably due to the lack of options with extreme strikes. Although the RWDs perform better than RND in terms of Kolmogorov distance, they still have problems in fitting the tails of actual data. Thus, the risk-aversion adjustment may improve the forecast ability, but it does not solve the tails misfitting.
{"title":"The Forecast Ability of Option-implied Densities from Emerging Markets Currencies","authors":"José Renato Haas Ornelas","doi":"10.12660/BRE.V36N12016.45406","DOIUrl":"https://doi.org/10.12660/BRE.V36N12016.45406","url":null,"abstract":"This paper empirically evaluates Risk-Neutral Densities (RND) and Real-World Densities (RWD) as predictors of emerging markets currencies. The dataset consists of volatility surfaces from 11 emerging market currencies, with approximately six years of daily data, using options with one-month expiration. Therefore, there is a strong overlapping in data, which is tackled with specific econometric techniques. Results of the out-of-sample assessment show that both RND and RWD underweight the tails of the actual distribution. This is probably due to the lack of options with extreme strikes. Although the RWDs perform better than RND in terms of Kolmogorov distance, they still have problems in fitting the tails of actual data. Thus, the risk-aversion adjustment may improve the forecast ability, but it does not solve the tails misfitting.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"139 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-06-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127468533","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 : 2015-03-25DOI: 10.12660/BRE.V36N12016.26962
Bernardo Guimaraes, A. Mazini, Diogo de Prince
This paper proposes a test for distinguishing between time-dependent and state-dependent pricing based on whether the timing of pricing changes is affected by realized or expeted inflation. Using Brazilian data and exploring a large discrepancy between realized and expected inflation surrounding the election of President Lula in 2002-3, we obtain a strong relation between expected inflation and duration of price spells, but little effect of inflation shocks on the frequency of price adjustment. The results thus support models with time-dependent pricing, where the timing for following changes is optimally chosen whenever firms adjust prices.
{"title":"Time-dependent or state-dependent pricing? Evidence from firms’ response to inflation shocks","authors":"Bernardo Guimaraes, A. Mazini, Diogo de Prince","doi":"10.12660/BRE.V36N12016.26962","DOIUrl":"https://doi.org/10.12660/BRE.V36N12016.26962","url":null,"abstract":"This paper proposes a test for distinguishing between time-dependent and state-dependent pricing based on whether the timing of pricing changes is affected by realized or expeted inflation. Using Brazilian data and exploring a large discrepancy between realized and expected inflation surrounding the election of President Lula in 2002-3, we obtain a strong relation between expected inflation and duration of price spells, but little effect of inflation shocks on the frequency of price adjustment. The results thus support models with time-dependent pricing, where the timing for following changes is optimally chosen whenever firms adjust prices.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"74 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116284683","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 : 2015-03-25DOI: 10.12660/BRE.V99N992016.56757
Celio Feltrin, Bernardo Guimaraes
State-dependent and time-dependent price setting models yield distinct implications for how frequency and magnitude of price changes react to shocks. This note studies pricing behavior in Brazil following the large devaluation of the Brazilian Real in 1999 to distinguish between models. The results are consistent with state-dependent pricing.
{"title":"Time-Dependent or State-Dependent Pricing? Evidence From a Large Devaluation","authors":"Celio Feltrin, Bernardo Guimaraes","doi":"10.12660/BRE.V99N992016.56757","DOIUrl":"https://doi.org/10.12660/BRE.V99N992016.56757","url":null,"abstract":"State-dependent and time-dependent price setting models yield distinct implications for how frequency and magnitude of price changes react to shocks. This note studies pricing behavior in Brazil following the large devaluation of the Brazilian Real in 1999 to distinguish between models. The results are consistent with state-dependent pricing.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121287290","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 : 2015-03-25DOI: 10.12660/BRE.V36N12016.24027
Caio Almeida, Leonardo Tavares Pereira
In this article, we develop a strategy to simultaneously extract a yield curve and price call options embedded in debentures subject to credit risk. The implementation is based on a combination of two methods: term structure estimation adopting the Nelson-Siegel model sequentially followed by the use of the spread-curve (term structure of debentures minus local inter-bank risk-free rate) to calibrate a trinomial tree for short-term interest rates making use of the Hull and White model (1993). The proposed methodology allows us to price embedded options making debentures with and without embedded options comparable on a common basis. As a consequence, since a large number of the existing Brazilian debentures contain embedded options, our methodology increases the number of debentures available to estimate a term structure for Brazilian local fixed income bonds. We illustrate the method by pricing a call option for a debenture issued by the company “Telefonica Brasil”.
{"title":"Pricing Options Embedded in Debentures with Credit Risk","authors":"Caio Almeida, Leonardo Tavares Pereira","doi":"10.12660/BRE.V36N12016.24027","DOIUrl":"https://doi.org/10.12660/BRE.V36N12016.24027","url":null,"abstract":"In this article, we develop a strategy to simultaneously extract a yield curve and price call options embedded in debentures subject to credit risk. The implementation is based on a combination of two methods: term structure estimation adopting the Nelson-Siegel model sequentially followed by the use of the spread-curve (term structure of debentures minus local inter-bank risk-free rate) to calibrate a trinomial tree for short-term interest rates making use of the Hull and White model (1993). The proposed methodology allows us to price embedded options making debentures with and without embedded options comparable on a common basis. As a consequence, since a large number of the existing Brazilian debentures contain embedded options, our methodology increases the number of debentures available to estimate a term structure for Brazilian local fixed income bonds. We illustrate the method by pricing a call option for a debenture issued by the company “Telefonica Brasil”.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121668639","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 : 2015-03-04DOI: 10.12660/BRE.V31N12011.4134
H. Lopes, Ronaldo Dias
In this paper we study the effect of model misspecifications for probabilitydensity function estimation. We use a mixture of a parametric and nonparametricdensity estimation. The former can be modeled by any suitable parametricprobability density function, including mixture of parametric models. The latteris given by the known B-spline estimation. The procedure also deals withthe situation when a highly structured data are collected so that it is difficultto propose a parametric model with a large number of mixture components.Then a nonparametric part would help to postulate an appropriate model. Inaddition, in order to reduce the computational cost of getting a nonparametricdensity for high dimensional data a parametric mixture of densities could beused as the starting point for modeling such dataset. Our procedure is computedby using EM-type algorithm for a non-Bayesian approach and MCMCalgorithm under a Bayesian point of view. Simulations and real data analysisshow that our proposed procedure have performed quite well even for nonstructured datasets.
{"title":"Bayesian mixture of parametric and nonparametric density estimation: A Misspecification Problem","authors":"H. Lopes, Ronaldo Dias","doi":"10.12660/BRE.V31N12011.4134","DOIUrl":"https://doi.org/10.12660/BRE.V31N12011.4134","url":null,"abstract":"In this paper we study the effect of model misspecifications for probabilitydensity function estimation. We use a mixture of a parametric and nonparametricdensity estimation. The former can be modeled by any suitable parametricprobability density function, including mixture of parametric models. The latteris given by the known B-spline estimation. The procedure also deals withthe situation when a highly structured data are collected so that it is difficultto propose a parametric model with a large number of mixture components.Then a nonparametric part would help to postulate an appropriate model. Inaddition, in order to reduce the computational cost of getting a nonparametricdensity for high dimensional data a parametric mixture of densities could beused as the starting point for modeling such dataset. Our procedure is computedby using EM-type algorithm for a non-Bayesian approach and MCMCalgorithm under a Bayesian point of view. Simulations and real data analysisshow that our proposed procedure have performed quite well even for nonstructured datasets.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"86 4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131214181","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 : 2015-03-03DOI: 10.12660/BRE.V35N22015.57570
Marco A. F. H. Cavalcanti, Luciano Vereda
This paper quanties and compares the macroeconomic eects of shocks to dierent types of public expenditure public investment, social transfers and public employees payroll under various scal policy rules. The analysis is based on a medium-sized DSGE model developed and calibrated to represent the Brazilian economy. The model incorporates a realistic public sector capable of intervening in the economy through several channels;in particular, the model explicitly considers the existence of public employment. The main simulation results are: (i) shocks to social transfers spending increase output in the short run, but generate negative multipliers in the medium run under all scal rules considered; (ii) public investment multipliers may be negative in the short run but are always positive in the medium run; (iii) scal rules relying on distortionary taxation to balance the primary budget can lead to both lower output andhigher in ation; (iv) policy rules based on a more protracted scal adjustment strategy may benet economic activity in the short or medium run,but imply a higher adjustment cost in the long run.
{"title":"Fiscal Policy Multipliers in a DSGE Model for Brazil","authors":"Marco A. F. H. Cavalcanti, Luciano Vereda","doi":"10.12660/BRE.V35N22015.57570","DOIUrl":"https://doi.org/10.12660/BRE.V35N22015.57570","url":null,"abstract":"This paper quanties and compares the macroeconomic eects of shocks to dierent types of public expenditure public investment, social transfers and public employees payroll under various scal policy rules. The analysis is based on a medium-sized DSGE model developed and calibrated to represent the Brazilian economy. The model incorporates a realistic public sector capable of intervening in the economy through several channels;in particular, the model explicitly considers the existence of public employment. The main simulation results are: (i) shocks to social transfers spending increase output in the short run, but generate negative multipliers in the medium run under all scal rules considered; (ii) public investment multipliers may be negative in the short run but are always positive in the medium run; (iii) scal rules relying on distortionary taxation to balance the primary budget can lead to both lower output andhigher in ation; (iv) policy rules based on a more protracted scal adjustment strategy may benet economic activity in the short or medium run,but imply a higher adjustment cost in the long run.","PeriodicalId":332423,"journal":{"name":"Brazilian Review of Econometrics","volume":"826 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-03-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133842692","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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