This paper quantifies and compares the macroeconomic effects of shocks to different types of public expenditure-public investment, social transfers and public employees payroll-under various fiscal policy rules. The analysis is based on a medium-sized DSGE model developed and calibrated to represent the Brazilian economy. The model incorporates a realistic public sector capable of intervening in the economy through several channels; in particular, the model explicitly considers the existence of public employment. The main simulation results are: (i) shocks to social transfers spending increase output in the short run, but generate negative multipliers in the medium run under all fiscal rules considered; (ii) public investment multipliers may be negative in the short run but are always positive in the medium run; (iii) fiscal rules relying on distortionary taxation to balance the primary budget can lead to both lower output and higher inflation; (iv) policy rules based on a more protracted fiscal adjustment strategy may benefit economic activity in the short or medium run, but imply a higher adjustment cost in the long run.
In this paper we follow the work of Evans and Marshall and propose new approaches for modelling the joint development of macro variables and the returns of government bond yields of several maturities. The models are estimated and compared with other forecasting schemes previously proposed in the literature, especially those relying on univariate, VAR and error correction methods. The models are then used to judge the hypothesis that the information content of macro variables and the term structure of interest rates as a whole help improving forecasting performance. Our main conclusion is quite simple: if one is interested in computing short-term forecasts, then there is no significant improvement in incorporating information other than the one already present in past observations of the yield at hand; however, if one worries about long-term forecasts (which is frequently the case with pension insurance companies), then the information content of macro variables and the term structure can improve forecasting performance.
SUMMARYThis paper deals with restricted linear state space models for dynamic style analysis with time-varying selectivity measurement. Implementation and interpretation of the models are pertinently discussed. Empirical contributions lie on the understanding of how managers of Brazilian US Dollar/Real exchange-rate funds behaved along 2001 and 2002, a period of some political turbulence especially due to the 2002 Brazilian presidential election.
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