Rafael Santos - Academia.edu (original) (raw)

Papers by Rafael Santos

Research paper thumbnail of Inflation Targeting with Imperfect Information*

International Economic Review, 2016

In a global games setup with imperfect commitment technology, we show that low targets—the ones c... more In a global games setup with imperfect commitment technology, we show that low targets—the ones close to the optimal inflation under perfect commitment—are unattainable, leading to a trade‐off between low and credible targets. Moreover, since noisy public information helps to coordinate expectations around the announced target, our article supports unconventional policy prescriptions. First, weaker countries need to impose higher targets. Second, less transparency helps to make the announced target credible and then reduces the optimally announced target. Results are based on a general central bank loss function encompassing models traditionally used to discuss central bank decisions.

Research paper thumbnail of Speculative attacks, openness and crises

Revista Brasileira de Economia, 2012

In this paper we propose a dynamic stochastic general equilibrium model to evaluate …nancial adju... more In this paper we propose a dynamic stochastic general equilibrium model to evaluate …nancial adjustments that some emerging market economies went through to overcome external crises during the latest decades, such as default and local currency devaluation. We assume that real devaluation can be used to avoid external debt default, to improve trade balance and to reduce the real public debt level denominated in local currency. Such e¤ects increase the government ability to deal with external crisis, but also have costs in terms of welfare, related to expected in ‡ation, reductions in private investments and higher interest to be paid over the public debt. We conclude that openness improves expected welfare as it allows for a better devaluation-response technology against crises. We also present results for 32 middle-income countries, verifying that the proposed model can indicate, in a stylized way, the preferences for default-devaluation options and the magnitude of the currency depreciation required to overcome 48 external crises occurred as from 1971. Finally, as we construct our model based on the Cole-Kehoe self-ful…lling debt crisis model ([7]), adding local debt and trade, it is important to say that their policy alternatives to leave the crisis zone remains in our extended model, namely, to reduce the external debt level and to lengthen its maturity.

Research paper thumbnail of Monetary Arrangements for Emerging Economies

In this paper we look at various alternatives for monetary regimes: dollarization, monetary union... more In this paper we look at various alternatives for monetary regimes: dollarization, monetary union and local currency. We use an extension of the debt crisis model of Cole and Kehoe ([3], [4] and [5]), although we do not necessarily follow their sunspot interpretation. Our focus is to appraise the welfare of a country which is heavily dependent on international capital due to low savings, for example, and might suffer a speculative attack on its external public debt. We study the conditions under which countries will be better off adopting each one of the regimes described above. If it belongs to a monetary union or to a local currency regime, a default may be avoided by an in ation tax on debt denominated in common or local currency, respectively. Under the former regime, the decision to in ate depends on each member country's political in uence over the union's central bank, while, in the latter one, the country has full autonomy to decide about its monetary policy. The possibility that the government in uences the central bank to create in ation tax for political reasons adversely affects the expected welfare of both regimes. Under dollarization, in ation is ruled out and the country that is subject to an external debt crisis has no other option than to default. Accordingly, one of our main results is that shared in ation control strengthens currencies and a common-currency regime is superior in terms of expected welfare to the local-currency one and to dollarization if external shocks that member countries suffer are strongly correlated to each other. On the other hand, dollarization is dominant if the room for political in ation under the alternative regime is high. Finally, local currency is dominant if external shocks are uncorrelated and the room for political pressure is mild. We nish by comparing Brazil's and Argentina's recent experiences which resemble the dollarization and the local currency regimes, and appraising the incentives that member countries would have to unify their currencies in the following common markets: Southern Common Market, Andean Community of Nations and Central American Common Market.

Research paper thumbnail of Infiation Targeting, Credibility and Coordination Aspects

There are plenty of economic studies pointing out some requirements, like the inexistence of fisc... more There are plenty of economic studies pointing out some requirements, like the inexistence of fiscal dominance, for inflation targeting framework be implemented in successful (credible) way. Essays on how public targets could be used in the absence of such requirements are unusual. In this papel ' we appraise how central banks could use inflation targeting before soundness economic fundamentaIs have been achieved. First, based on concise framework, where confidence crises and imperfect information are neglected, we conclude that less ambitious (greater) target for inflation increases the credibility in the precommitment. Optimal target is higher than the one obtained using the Cukierman-Liviatan [7] model, where increasing credibility effect is not considered. Second, extending the model to make confidence crises possible, multiple equilibria solutions becomes possible too. In this case, to set greater targets for inflation may stimulate confidence crises and reduce the policyma...

Research paper thumbnail of SAMBA: Stochastic Analytical Model with a Bayesian Approach

Brazilian Review of Econometrics, 2015

We present preliminary results from Samba, the DSGE model in development at the Central Bank of B... more We present preliminary results from Samba, the DSGE model in development at the Central Bank of Brazil to be used as a tool for policy analysis and medium-term forecast. We estimate the model with Bayesian techniques, using data covering the in ‡ation targeting period (1999 to date). Although the model needs further developments and our initial evaluation is based only on impulse response functions, results seem promising. The estimated model delivers impulse response functions that replicate fairly well both in ‡ation dynamics and monetary policy transmission mechanisms in Brazil. In particular, we show the results for shocks to aggregate demand, to world demand, and to monetary policy. However, the estimated degree of price rigidity is relatively high. Further research is warranted.

Research paper thumbnail of Inflation Targeting, Credibility and Coordination Aspects

There are plenty of economic studies pointing out some requirements, like the inexistence of fisc... more There are plenty of economic studies pointing out some requirements, like the inexistence of fiscal dominance, for inflation targeting framework be implemented in successful (credible) way. Essays on how public targets could be used in the absence of such requirements are unusual. In this papel' we appraise how central banks could use inflation targeting before soundness economic fundamentaIs have been achieved. First, based on concise framework, where confidence crises and imperfect information are neglected, we conclude that less ambitious (greater) target for inflation increases the credibility in the precommitment. Optimal target is higher than the one obtained using the Cukierman-Liviatan [7] model, where increasing credibility effect is not considered. Second, extending the model to make confidence crises possible, multiple equilibria solutions becomes possible too. In this case, to set greater targets for inflation may stimulate confidence crises and reduce the policymaker credibility. On the other hand, multiple (bad) equilibria may be avoided. The optimal target depends on the likelihood of each equilibrium be selected. Finally, when perturbing common knowledge uniqueness is restored even considering confidence crises, as in Morris-Shin[ 14]. The first result, i.e. less ambitious target for inflation increases credibility in precommitment, is also recovered. Adding a precise public signal, cOOl'dinated self-fulfilling actions and equilibrium multiplicity may still exist for some lack of common knowledge (as in Angeleto and Weming[l]). In this case, to set greater targets for inflation may stimulate confidence crisis again, reducing the policymaker credibility. From another aspect, multiple (bad) equilibria may be avoided. Optimal policy prescriptions depend on the likelihood of each equilibrium be selected. Results also indicate that more precise public information may open the door for bad equilibrium, contrary to the conventional wisdom that more central oank transparency is always good when considering inflation targeting framework.

Research paper thumbnail of Inflation Targeting, Credibility and Confidence Crises

No 653 ISSN 0104-8910 Inflation Targeting, Credibility and Confidence Crises Aloisio Pessoa de Ar... more No 653 ISSN 0104-8910 Inflation Targeting, Credibility and Confidence Crises Aloisio Pessoa de Araujo, Rafael Santos ´ Setembro de 2007 Os artigos publicados são de inteira responsabilidade de seus autores. As opiniões ...

Research paper thumbnail of Inflation Targeting with Imperfect Information*

International Economic Review, 2016

In a global games setup with imperfect commitment technology, we show that low targets—the ones c... more In a global games setup with imperfect commitment technology, we show that low targets—the ones close to the optimal inflation under perfect commitment—are unattainable, leading to a trade‐off between low and credible targets. Moreover, since noisy public information helps to coordinate expectations around the announced target, our article supports unconventional policy prescriptions. First, weaker countries need to impose higher targets. Second, less transparency helps to make the announced target credible and then reduces the optimally announced target. Results are based on a general central bank loss function encompassing models traditionally used to discuss central bank decisions.

Research paper thumbnail of Speculative attacks, openness and crises

Revista Brasileira de Economia, 2012

In this paper we propose a dynamic stochastic general equilibrium model to evaluate …nancial adju... more In this paper we propose a dynamic stochastic general equilibrium model to evaluate …nancial adjustments that some emerging market economies went through to overcome external crises during the latest decades, such as default and local currency devaluation. We assume that real devaluation can be used to avoid external debt default, to improve trade balance and to reduce the real public debt level denominated in local currency. Such e¤ects increase the government ability to deal with external crisis, but also have costs in terms of welfare, related to expected in ‡ation, reductions in private investments and higher interest to be paid over the public debt. We conclude that openness improves expected welfare as it allows for a better devaluation-response technology against crises. We also present results for 32 middle-income countries, verifying that the proposed model can indicate, in a stylized way, the preferences for default-devaluation options and the magnitude of the currency depreciation required to overcome 48 external crises occurred as from 1971. Finally, as we construct our model based on the Cole-Kehoe self-ful…lling debt crisis model ([7]), adding local debt and trade, it is important to say that their policy alternatives to leave the crisis zone remains in our extended model, namely, to reduce the external debt level and to lengthen its maturity.

Research paper thumbnail of Monetary Arrangements for Emerging Economies

In this paper we look at various alternatives for monetary regimes: dollarization, monetary union... more In this paper we look at various alternatives for monetary regimes: dollarization, monetary union and local currency. We use an extension of the debt crisis model of Cole and Kehoe ([3], [4] and [5]), although we do not necessarily follow their sunspot interpretation. Our focus is to appraise the welfare of a country which is heavily dependent on international capital due to low savings, for example, and might suffer a speculative attack on its external public debt. We study the conditions under which countries will be better off adopting each one of the regimes described above. If it belongs to a monetary union or to a local currency regime, a default may be avoided by an in ation tax on debt denominated in common or local currency, respectively. Under the former regime, the decision to in ate depends on each member country's political in uence over the union's central bank, while, in the latter one, the country has full autonomy to decide about its monetary policy. The possibility that the government in uences the central bank to create in ation tax for political reasons adversely affects the expected welfare of both regimes. Under dollarization, in ation is ruled out and the country that is subject to an external debt crisis has no other option than to default. Accordingly, one of our main results is that shared in ation control strengthens currencies and a common-currency regime is superior in terms of expected welfare to the local-currency one and to dollarization if external shocks that member countries suffer are strongly correlated to each other. On the other hand, dollarization is dominant if the room for political in ation under the alternative regime is high. Finally, local currency is dominant if external shocks are uncorrelated and the room for political pressure is mild. We nish by comparing Brazil's and Argentina's recent experiences which resemble the dollarization and the local currency regimes, and appraising the incentives that member countries would have to unify their currencies in the following common markets: Southern Common Market, Andean Community of Nations and Central American Common Market.

Research paper thumbnail of Infiation Targeting, Credibility and Coordination Aspects

There are plenty of economic studies pointing out some requirements, like the inexistence of fisc... more There are plenty of economic studies pointing out some requirements, like the inexistence of fiscal dominance, for inflation targeting framework be implemented in successful (credible) way. Essays on how public targets could be used in the absence of such requirements are unusual. In this papel ' we appraise how central banks could use inflation targeting before soundness economic fundamentaIs have been achieved. First, based on concise framework, where confidence crises and imperfect information are neglected, we conclude that less ambitious (greater) target for inflation increases the credibility in the precommitment. Optimal target is higher than the one obtained using the Cukierman-Liviatan [7] model, where increasing credibility effect is not considered. Second, extending the model to make confidence crises possible, multiple equilibria solutions becomes possible too. In this case, to set greater targets for inflation may stimulate confidence crises and reduce the policyma...

Research paper thumbnail of SAMBA: Stochastic Analytical Model with a Bayesian Approach

Brazilian Review of Econometrics, 2015

We present preliminary results from Samba, the DSGE model in development at the Central Bank of B... more We present preliminary results from Samba, the DSGE model in development at the Central Bank of Brazil to be used as a tool for policy analysis and medium-term forecast. We estimate the model with Bayesian techniques, using data covering the in ‡ation targeting period (1999 to date). Although the model needs further developments and our initial evaluation is based only on impulse response functions, results seem promising. The estimated model delivers impulse response functions that replicate fairly well both in ‡ation dynamics and monetary policy transmission mechanisms in Brazil. In particular, we show the results for shocks to aggregate demand, to world demand, and to monetary policy. However, the estimated degree of price rigidity is relatively high. Further research is warranted.

Research paper thumbnail of Inflation Targeting, Credibility and Coordination Aspects

There are plenty of economic studies pointing out some requirements, like the inexistence of fisc... more There are plenty of economic studies pointing out some requirements, like the inexistence of fiscal dominance, for inflation targeting framework be implemented in successful (credible) way. Essays on how public targets could be used in the absence of such requirements are unusual. In this papel' we appraise how central banks could use inflation targeting before soundness economic fundamentaIs have been achieved. First, based on concise framework, where confidence crises and imperfect information are neglected, we conclude that less ambitious (greater) target for inflation increases the credibility in the precommitment. Optimal target is higher than the one obtained using the Cukierman-Liviatan [7] model, where increasing credibility effect is not considered. Second, extending the model to make confidence crises possible, multiple equilibria solutions becomes possible too. In this case, to set greater targets for inflation may stimulate confidence crises and reduce the policymaker credibility. On the other hand, multiple (bad) equilibria may be avoided. The optimal target depends on the likelihood of each equilibrium be selected. Finally, when perturbing common knowledge uniqueness is restored even considering confidence crises, as in Morris-Shin[ 14]. The first result, i.e. less ambitious target for inflation increases credibility in precommitment, is also recovered. Adding a precise public signal, cOOl'dinated self-fulfilling actions and equilibrium multiplicity may still exist for some lack of common knowledge (as in Angeleto and Weming[l]). In this case, to set greater targets for inflation may stimulate confidence crisis again, reducing the policymaker credibility. From another aspect, multiple (bad) equilibria may be avoided. Optimal policy prescriptions depend on the likelihood of each equilibrium be selected. Results also indicate that more precise public information may open the door for bad equilibrium, contrary to the conventional wisdom that more central oank transparency is always good when considering inflation targeting framework.

Research paper thumbnail of Inflation Targeting, Credibility and Confidence Crises

No 653 ISSN 0104-8910 Inflation Targeting, Credibility and Confidence Crises Aloisio Pessoa de Ar... more No 653 ISSN 0104-8910 Inflation Targeting, Credibility and Confidence Crises Aloisio Pessoa de Araujo, Rafael Santos ´ Setembro de 2007 Os artigos publicados são de inteira responsabilidade de seus autores. As opiniões ...