1,721,083 research outputs found
Delegated Portfolio Management
Full text linkIn this paper, we examine optimal portfolio decisions within a decentralized framework. There are many portfolio managers choosing optimal portfolio weights in a mean-variance framework and taking decisions in a decentralized way. However, the overall portfolio may not be efficient, as the portfolio managers do not take into account the overall covariance matrix. We show that the initial endowment that portfolio managers can use within the firm in order to manage their portfolios can be used as a control variable by the top administration and redistributed within the firm in order to achieve overall efficiency.
Monetary Policy Surprises and the Brazilian Term Structure of Interest Rates
Full text linkThis paper examines the information content of COPOM decisions to change or to leave unchanged monetary policy by estimating the responses of the term structure to changes in the target for interest rates on COPOM meeting days. Within an event-study approach the evidence suggests that market participants anticipate, at least partially, monetary policy actions. Furthermore, it is found that the introduction of the floating exchange and inflation-targeting regime has had a dampening effect on interest rate surprises along the term structure.
Building Confidence Intervals with Block Bootstraps for the Variance Ratio Test of Predictability
Full text linkThis paper compares different versions of the multiple variance ratio test based on bootstrap techniques for the construction of empirical distributions. It also analyzes the crucial issue of selecting optimal block sizes when block bootstrap procedures are used, by applying the methods developed by Hall et al. (1995) and by Politis and White (2004). By comparing the results of the different methods using Monte Carlo simulations, we conclude that methodologies using block bootstrap methods present better performance for the construction of empirical distributions of the variance ratio test. Moreover, the results are highly sensitive to methods employed to test the null hypothesis of random walk.
On the Information Content of Oil Future Prices
Full text linkThis paper deals with the efficiency of the Brent Crude oil future contracts and tests whether futures can be used to predict realized oil spot prices. Evidence suggests that future prices up to three-months contracts on Brent Crude are unbiased predictors of future spot prices but the explanation power is not high (around 20%). Furthermore, using cointegration techniques the unbiasedness hypothesis for future prices as predictors of realized spot prices could not be rejected. When the sample is divided into sub-periods, the absence of bias in futures prices is rejected.
Inflation Targeting in Brazil: Constructing Credibility under Exchange Rate Volatility
Full text linkThis paper assesses the challenges faced by the inflation-targeting regime in Brazil. The confidence crisis in the future performance of the Brazilian economy and the increase in risk aversion in international markets were responsible for a sudden stop of capital inflows in 2002 that caused a significant depreciation of the exchange rate. 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.
Optimal Monetary Rules: The Case of Brazil
Full text linkWithin a dynamic programming approach we derive an optimal rule for the central bank to attain it's inflation targeting goals. The short-run nominal interest rate is used as an instrument to achieve monetary objectives. The model is tested for the Brazilian economy and compared with results found for other countries. Evidence for the estimated feedback interest rule for the Central Bank suggests that the cost of reducing inflation in an open economy is lower than that of a closed economy.
Speculative Attacks on Debts and Optimum Currency Area: A Welfare Analysis
Full text linkResorting to an extension of the debt crisis model of Cole and Kehoe (JIE 1996), we evaluate financial aspects of an optimum currency area. Our focus is to appraise the welfare of a country, which belongs to a monetary union and might suffer a speculative attack on its public debt. A default may be avoided by an inflation tax on common-currency debt, but this decision depends on majority voting and have costs associated with it. Moreover, the model considers symmetry between national and central governments' decisions about inflation and also describes the loss in international bankers' confidence towards one country being passed on to another. One of our results is that, for a country with low weight in the voting system, common-currency regime is superior in terms of expected welfare to dollarization and may be a better choice than the local-currency one, as the central bank under the latter regime undergoes some political influence from its government.
On Shadow-Prices of Banks in Real-Time Gross Settlement Systems
Full text linkI model the functioning of real-time gross settlement systems for large-value interbank transfers as a linear programming problem in which queueing arrangements, splitting of payments, Lombard loans, and interbank credit exposures arise as primal solutions. Then I use the dual programming problem associated with the maximization of the total flow of payments in order to determine the shadow-prices of banks in the payment system. We use these shadow-prices to set personalized intraday monetary policies such as reserve requirements, availability of Central Bank credit to temporarily illiquid banks, extension of intraday interbank credit exposures, etc., so as to make the payment system more efficient and less costly in terms of systemic liquidity. The dual approach shows us how to make banks correctly internalize the intraday network externalities they create in the real-time gross settlement system and provides an objective standard for the daily microprudential surveillance of the payment system.
Real Balances in the Utility Function: Evidence for Brazil
Full text linkThe aim of this paper is to examine the relevance of a money-in-the-utility-function model for the Brazilian economy. In addition to consumption, the household is supposed to derive utility from leisure and from the holdings of real balances. The system, formed by the first-order conditions of the household intertemporal problem (Euler equations), is estimated by generalized method of moments (GMM). The results show strong support for the presence of money in the utility function for Brazil.
Bank Competition, Agency Costs and the Performance of the Monetary Policy
Full text linkThis paper extends the general equilibrium literature on bank competition in order to evaluate its role on the performance of the monetary policy. A new formulation of a financial contract taking into consideration both market power by banks as well as costly state verification is proposed here. Numerical simulations with the model economy parameterized to the Brazilian case are performed. Two cases are examined: One in which the banking sector is perfectly competitive and the other one when banks have market power. The main conclusions of the paper are the following: (1) Greater competition in the loan market enhances the response of the real economy to an interest rate shock; (2) Increased competition and/or a more efficient verification technology reduce the reaction of both the default rate and of the bank interest spread to an interest rate shock; and (3) The influence of the verification technology in the economy's dynamic response is greater when banks operate under perfect competition.
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