Is it Risk? An Automated Approach to Explain the ex ante UIP Deviations of Brazil

The paper tests whether ex ante deviations from Uncovered Interest Rate Parity correspond to default risk premium. Using an automated model selection criteria and data for Brazil (from november 2001 until december 2007), we found that deviations are correUncovered interest rate parity, risk, model evaluation and testing

Evaluating and improving the cluster variation method entropy functional for Ising alloys

The success of the "Cluster Variation Method" (CVM) in reproducing quite accurately the free energies of Monte Carlo (MC) calculations on Ising models is explained in terms of identifying a cancellation of errors: We show that the CVM produces correlation functions that are too close to zero, which leads to an overestimation of the exact energy, E, and at the same time, to an underestimation of -TS, so the free energy F=E-TS is more accurate than either of its parts. This insight explains a problem with "hybrid methods" using MC correlation functions in the CVM entropy expression: They give exact energies E and do not give significantly improved -TS relative to CVM, so they do not benefit from the above noted cancellation of errors. Additionally, "hybrid methods" suffer from the difficulty of adequately accounting for both ordered and disordered phases in a consistent way. A different technique, the "Entropic Monte Carlo" (EMC), is shown here to provide a means for critically evaluating the CVM entropy. Inspired by EMC results, we find a universal and simple correction to the CVM entropy which produces individual components of the free energy with MC accuracy, but is computationally much less expensive than either MC thermodynamic integration or EMC.Comment: 7 pages, ReVTeX galley format, 4 eps figures embedded using epsf, to be published in J. Chem. Phy

Leaning against the parity

The paper presents evidence that the simultaneous relationship between uncovered interest rate parity (UIP) and a monetary policy function can explain the empirical failure of the former. Using the model proposed by McCallum (1994), we carry out tests for a sample of developed and emerging markets from 1995M5 to 2004M3. The results lend strong support to the view that monetary policy affects the equilibrium nominal interest rate differential between emerging economies and the US. Slow adjustment in interest rates and reaction against price changes seem to be the prominent features of the reaction function. Shocks have an asymmetric impact on the volatility of the differentials which is also significant to explain monetary policy. Finally, the dynamic properties of uncovered interest rate parity ex post deviations, also interpreted as risk premium, influence the equilibrium nominal interest rate differentials

Are real interest differentials caused by frictions in goods or assets markets, real or nominal shocks?

The variance of real interest rate differentials (rids) is decomposed between ex post deviations from relative purchasing power parity and uncovered interest rate parity (UIRP) for a set of emerging markets from 1995M5 to 2004M3. The results point out t

Real interest parity decomposition

The aim of this paper is to investigate the general causes of real interest rate differentials (rids) for a sample of emerging markets for the period of January 1996 to August 2007. To this end, two methods are applied. The first consists of breaking the variance of rids down into relative purchasing power pariety and uncovered interest rate parity and shows that inflation differentials are the main source of rids variation; while the second method breaks down the rids and nominal interest rate differentials (nids) into nominal and real shocks. Bivariate autoregressive models are estimated under particular identification conditions, having been adequately treated for the identified structural breaks. Impulse response functions and error variance decomposition result in real shocks as being the likely cause of rids.O objetivo deste artigo é investigar as causas gerais dos diferenciais da taxa de juros real (rids) para um conjunto de países emergentes, para o período de janeiro de 1996 a agosto de 2007. Para tanto, duas metodologias são aplicadas. A primeira consiste em decompor a variância dos rids entre a paridade do poder de compra relativa e a paridade de juros a descoberto e mostra que os diferenciais de inflação são a fonte predominante da variabilidade dos rids; a segunda decompõe os rids e os diferenciais de juros nominais (nids) em choques nominais e reais. Sob certas condições de identificação, modelos autorregressivos bivariados são estimados com tratamento adequado para as quebras estruturais identificadas e as funções de resposta ao impulso e a decomposição da variância dos erros de previsão são obtidas, resultando em evidências favoráveis a que os choques reais são a causa mais provável dos rids

Carry trade e risco cambial : um conto de dois fatores

Retornos da estratégia de carry trade tem sido explicados usando-se funções de utilidade inseparáveis no tempo que permitem prêmios de risco voláteis. Tipicamente tais funções mimetizam as preferências de economia fechada que dependem de bens duráveis e não duráveis. Este trabalho retorna a uma classificação mais tradicional, em macroeconomia internacional, de consumo entre bens domésticos e importados. O modelo é aplicado para países que representam 99\% do volume mundial do comércio bilateral de câmbio. Reporta-se uma melhora acentuada na significância dos betas de consumo. Carry trade returns have been explained using time inseparable utility functions which allow for volatile risk premia. However these functions typically mimic closed economy preferences which depend on durable and non-durable goods. This paper returns to a more traditional classification of consumption, in international macroeconomics, into domestic and importable goods. The model is implemented for countries that represent 99% of the world market turnover in bilateral foreign exchange trades. We report a marked improvement in estimated consumption betas

Condições de viabilidade para a regularização fundiária plena: uma problematização a partir da experiência de Juiz de Fora (MG)

With a theoretical-practical approach, empirically based on experience in the municipality of Juiz de Fora, in the state of Minas Gerais, through actions of land tenure regularization, this paper, in a contextualized manner, seeks to reflect on the design, process and “post-intervention” moment of the regularization of low-income urban settlements. Although it was assessed that the investigated experience failed to meet the concept of full land tenure regularization, the study was nonetheless able to identify a number of assumptions and lessons that emerged, through which it has been possible to propose some relevant guidelines in order to revise the concept and practices under discussion. Special attention has been given to the beneficiaries of the regularization process, thereby contrasting the recurrent view that they are mere "partners" with the perspective that places them rather as protagonists in the process.A partir de uma abordagem de cunho teórico-prático, cuja empiria se baseia na experiência do município de Juiz de Fora (MG) com ações de regularização fundiária, o artigo busca refletir, de maneira contextualizada, sobre o desenho, o processo e o momento “pós-intervenção” da regularização de assentamentos urbanos de baixa renda. Apesar de avaliar que a experiência estudada ficou aquém do atendimento do conceito de regularização fundiária plena, o trabalho sistematiza pressupostos e lições que dela emergiram, propondo algumas balizas para a atualização do conceito e das práticas em questão. É dada atenção especial aos beneficiários da regularização, contrastando a visão recorrente de que eles são meros "parceiros” com a perspectiva que os situa como protagonistas do processo

Does the real interest parity hypothesis hold? Evidence for developed and emerging markets

Evidence is presented on the Real Interest Parity Hypothesis for a set of emerging and developed countries. This is done by carrying out a set of unit-root tests on the real interest differentials with respect to Germany and the US. Our results support the hypothesis of a rapid reversion towards a zero differential for developed countries and towards a positive one for emerging markets. An important result is that this adjustment tends to be highly asymmetric and markedly different for developed and emerging countries. Our evidence reveals a high degree of market integration for developed countries and highlights the importance of risk premia for emerging markets