Alex Luiz Ferreira

Publications (4)0 Total impact

• Article: On the Transmission Mechanism of Monetary Constraints to the Real Side of the Economy

  Alex Luiz Ferreira
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  ABSTRACT: Contrary to the predictions of the theory underlying international finance, inflows of capital triggered by financial liberalisation have neither equalised real interest rates nor increased income growth in many emerging economies. We explain this puzzle by developing a model that combines the balance-of-payments constraint approach to economic growth with a less stringent version of the real interest rate parity hypothesis. The model's foundations are based on robust empirical findings or well-established macroeconomic models. We show that a perverse combination of income elasticities of demand for imports and exports generates slow income growth and high real interest rates. As domestic income grows and imports rise faster than exports, the real exchange rate is expected to depreciate in order to clear the balance of payments (or the foreign exchange rate market). An incipient capital outflow arises and interest rates increase. Faster adjustment in capital rather than in the goods market therefore generates a higher real interest rate differential between the domestic small open-economy and the rest of the world. The long run analysis shows that a constant degree of risk aversion implies a positive equilibrium real interest rate differential that affects economic growth. A permanent increase in default risk driven by persistent current account imbalances thus impacts on long run growth. The model's results are illustrated with evidence from the three major Latin America economies: Argentina, Brazil and Mexico.
  International Review of Applied Economics 02/2007; 21(1):43-54.
• Article: Leaning Against the Parity

  Alex Luiz Ferreira
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  ABSTRACT: 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.
  11/2004;
• Source

  Available from: ukc.ac.uk

  Article: Are Real Interest Differentials Caused by Frictions in Goods or Assets Markets, Real or Nominal Shocks?

  Alex Luiz Ferreira
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  ABSTRACT: 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 to nominal interest rate differentials and ex post deviations from UIRP as the main source of volatility in rids. In order to uncover the dynamic effects of real and monetary disturbances, I estimated a bivariate VAR with rids and nominal interest rate differentials. Forecast error variance decomposition using short run restrictions on the VAR strongly supports the claim that money shocks are unable to explain the variability of rids at longer horizons. Long-run restrictions results in real shocks as the likely cause of rids. Analysis of impulse response functions demonstrates that the net impact of a (one standard deviation) real shock on rids after 36 months is large.
  09/2004;
• Source

  Available from: Miguel A León-Ledesma

  Article: Does the Real Interest Parity Hypothesis Hold? Evidence for Developed and Emerging Markets

  Alex Luiz Ferreira, Miguel León-Ledesma
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  ABSTRACT: 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 differeential 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 integratioin for developed countries and highlights the importance of risk premia for emerging markets.
  09/2003;