Fiscal Policy and Macroeconomic Uncertainty in Emerging Markets: The Tale of the Tormented Insurer

Governments in emerging markets often behave like a "tormented insurer", trying to use non-state-contingent debt instruments to avoid sharp adjustments in their payments to private agents despite sharp fluctuations in public revenues. In the data, their ability to sustain debt is inversely related to the variability of their revenues, and their primary balances and current expenditures follow a procyclical pattern that contrasts sharply with the evidence from industrial countries. This paper proposes an equilibrium model of a small open economy with incomplete markets and aggregate uncertainty that can rationalize this behavior. In the model, a fiscal authority that chooses optimal expenditure and debt plans given stochastic revenues interacts with private agents that also make optimal consumption and asset accumulation plans. The competitive equilibrium of this economy is solved numerically as a Markov perfect equilibrium using parameter values calibrated to Mexican data. If perfect domestic risk pooling were possible, the ratio of public-to-private expenditures would be constant. With incomplete markets, however, this ratio fluctuates widely and results in welfare losses that dwarf previous estimates of the benefits of risk sharing and consumption smoothing. The model also yields a negative relationship between average public debt and revenue variability similar to the one observed in the data, and a correlation between output and government purchases that matches Mexican dataoptimal debt, fiscal solvency, procyclical fiscal policy, incomplete markets

Public Debt, Fiscal Solvency, and Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa Rica, and Mexico

The ratios of public debt as a share of GDP of Brazil, Colombia, and Mexico were 12 percentage points higher on average during the period 1996-2005 than in the period 1990-1995. Costa Rica's debt ratio remained stable but at a high level near 50 percent. Is there reason to be concerned for the solvency of the public sector in these economies? We provide an answer to this question based on the quantitative predictions of a variant of the framework proposed by Mendoza and Oviedo (2006). This methodology yields forward-looking estimates of debt ratios that are consistent with fiscal solvency for a government that faces revenue uncertainty and can issue only non-state-contingent debt. In this environment, aversion to a collapse in outlays leads the government to respect a ``natural debt limit" equal to the annuity value of the primary balance in a ``fiscal crisis." A fiscal crisis occurs after a long sequence of adverse revenue shocks and public outlays adjust to their tolerable minimum. The debt limit also represents a credible commitment to remain able to repay even in a fiscal crisis. The debt limit is not, in general, the same as the sustainable debt, which is driven by the probabilistic dynamics of the primary balance. The results of a baseline scenario question the sustainability of current debt ratios in Brazil and Colombia, while those in Costa Rica and Mexico are inside the limits consistent with fiscal solvency. In contrast, current debt ratios are found to be unsustainable in all four countries for plausible changes to lower average growth rates or higher real interest rates. Moreover, sustainable debt ratios fall sharply when default risk is taken into account.

Public Debt, Fiscal Solvency and Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa Rica, and Mexico

Ratios of public debt as a share of GDP in Brazil, Colombia, and Mexico were 10 percentage points higher on average during 1996-2002 than in the period 1990-1995. Costa Rica's debt ratio remained stable but at a high level near 50 percent. Is there reason to be concerned for the solvency of the public sector in these economies? We provide an answer to this question based on the quantitative predictions of a variant of the framework proposed by Mendoza and Oviedo (2004). This methodology yields forward-looking estimates of debt ratios consistent with fiscal solvency for a government that faces revenue uncertainty and can issue only non-state-contingent debt. In this environment, aversion to a collapse in outlays leads the government to respect a "natural debt limit" equal to the annuity value of the primary balance in a "fiscal crisis". A fiscl crisis occurs after a long sequence of adverse revenue shocks and public outlays adjust to a tolerable minimum. The debt limit also represents a credible commitment to be able to repay even in a fiscal crisis but is not, in general, the same as the sustainable debt, which is driven by the probabilistic dynamics of the primary balance. The results of a baseline scenario question the sustainability of current debt ratios in Brazil and Colombia, while those in Costa Rica and Mexico seem inside the limits consistent with fiscal solvency. In contrast, public debt ratios are found to be unsustainable in all four countries for plausible changes to lower average growth rates or higher real interest rates. Moreover, sustainable debt ratios fall sharply when default risk is taken into account.

Fiscal Policy and Macroeconomic Uncertainty in Developing Countries: The Tale of the Tormented Insurer

Governments in emerging markets often behave like a "tormented insurer," trying to use non-state-contingent debt instruments to avoid cuts in payments to private agents despite large fluctuations in public revenues. In the data, average public debt-GDP ratios decline as the variability of revenues increases, primary balances and current expenditures follow cyclical patterns sharply at odds with the countercyclical patterns of industrial countries, and the cyclical variability of public expenditures exceeds that of private expenditures by a wide margin. This paper proposes a model of a small open economy with incomplete markets that can rationalize this behavior. In the model a fiscal authority makes optimal expenditure and debt plans given shocks to output and revenues, and private agents make optimal consumption and asset accumulation plans. Quantitative analysis of the model calibrated to Mexico yields a negative relationship between average public debt and revenue variability similar to the one observed in the data. The model mimics Mexico's GDP correlations of government purchases and the primary balance. The ratio of public-to-private expenditures fluctuates widely and the implied welfare costs dwarf conventional estimates of negligible benefits of risk sharing and consumption smoothing.

Optical Properties of Graphene Nanoflakes: Shape Matters

In recent years there has been significant debate on whether the edge type of graphene nanoflakes (GNF) or graphene quantum dots (GQD) are relevant for their electronic structure, thermal stability and optical properties. Using computer simulations, we have proven that there is a fundamental difference in the calculated absorption spectra between samples of the same shape, similar size but different edge type, namely, armchair or zigzag edges. These can be explained by the presence of electronic structures near the Fermi level which are localized on the edges. These features are also evident from the dependence of band gap on the GNF size, which shows three very distinct trends for different shapes and edge geometries.Comment: 8 pages, 9 figures. Submitted to The Journal of Chemical Physic

Characterization of Ascaris from Ecuador and Zanzibar

To shed light on the epidemiology of ascariasis in Ecuador and Zanzibar, 177 adult worms retrieved by chemo-expulsion from either people or pigs were collected, measured and subjected to polymerase chain reaction-restriction fragment length polymorphism (PCR-RFLP) analysis of the ribosomal internal transcribed spacer (ITS) region. Upon double digestion with RsaI and HaeIII, PCR-RFLP analysis revealed the presence of A. lumbricoides in people and A. suum in pigs in Ecuador. In contrast, while there are no pigs on Zanzibar, of the 56 worms obtained from people, one was genotyped as A. suum. No additional genetic variation was detected upon further PCR-RFLP analysis with several other restriction enzymes. Upon measurement, worm mass and length differed by location and by species, A. suum being lighter and longer. While there is no evidence to suggest zoonotic transmission in Ecuador, an enduring historical signature of previous zoonotic transmission remains on Zanzibar

Effect of Electrolyte Balance in Low-Protein Diets on Broiler Performance and Tibial Dyschondroplasia Incidence

A proper dietary electrolyte balance (DEB) is essential to ensure an optimum acid-base equilibrium and broiler performance. In low-CP diets, this balance can be affected by reduction of soybean meal and inclusion of high levels of synthetic amino acids. Although, some studies have related low-protein diets supplemented with amino acids and DEB, these relations are not well explained, because some research demonstrates confusion about the deficiency and balance of nutrients. The objective of these experiments was to evaluate the DEB effects of diets with low levels of protein supplemented with amino acids on broiler performance and bone development. Results indicated that DEB and CP content influenced broiler chick performance in the starter and growing periods. There was no significant effect due to the interaction between DEB and CP content for tibial dyschondroplasia incidence (TD) or in bone breaking resistance during the growing period of either experiment. The incidence of TD was reduced with 253 mEq/kg DEB in the starter period

DNA damage and tissue repair: What we can learn from planaria.

Faithful renewal of aging and damaged tissues is central to organismal lifespan. Stem cells (SCs) generate the cellular progeny that replenish adult tissues across the body but this task becomes increasingly compromised over time. The age related decline in SC-mediated tissue maintenance is a multifactorial event that commonly affects genome integrity. The presence of DNA damage in SCs that are under continuous demand to divide poses a great risk for age-related disorders such as cancer. However, performing analysis of SCs with genomic instability and the DNA damage response during tissue renewal present significant challenges. Here we introduce an alternative experimental system based on the planaria flatworm Schmidtea mediterranea to address at the organismal level studies intersecting SC-mediated tissue renewal in the presence of genomic instability. Planaria have abundant SCs (neoblasts) that maintain high rates of cellular turnover and a variety of molecular tools have been developed to induce DNA damage and dissect how neoblasts respond to this stressor. S. mediterranea displays high evolutionary conservation of DNA repair mechanisms and signaling pathways regulating adult SCs. We describe genetically induced-DNA damage models and highlight body-wide signals affecting cellular decisions such as survival, proliferation, and death in the presence of genomic instability. We also discuss transcriptomic changes in the DNA damage response during injury repair and propose DNA repair as key component of tissue regeneration. Additional studies using planaria will provide insights about mechanisms regulating survival and growth of cells with DNA damage during tissue renewal and regeneration