Discretionary fiscal policy and disagreement in expectations about fiscal variables empirical evidence from Brazil

Montes, Gabriel Caldas; Luna, Paulo Henrique Lourenço

doi:10.1016/j.econmod.2018.03.007

Cited by 18 publications

(47 citation statements)

References 39 publications

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“…4. We follow Montes et al (2016a), Oliveira and Curi (2016), Montes and Luna (2018) and Montes and Souza (2020) and use this measure of disagreement throughout the paper, since other measures require the information related with the entire distribution of expectations, which is not provided by the CBB. We are aware of other measures of disagreement, such as the inter-quartile range and Kulback-Liebler divergence measure.…”

Section: Discussionmentioning

confidence: 99%

“…Exchange rate (Ex_rate) This series is the average between two series: "Exchange rate (Free) United States dollar (purchase) -end of period" (series number 3695obtained from the CBB) and "Exchange rate (Free) United States dollar (sale) -end of period" (series number 3696 -obtained from the CBB) Exchange rate volatility (Vol_ex_rate) This series is obtained following Capistran and Timmermann ( 2009), Ehrmann et al (2012) and Montes and Luna (2018), which use GARCH models to calculate volatility series used in estimates for the disagreements in expectations. Thus, Vol_ex_rate is constructed using the Ex_rate series in a GARCH (1,1) model (a variation of the ARCH model).…”

Section: Appendixmentioning

confidence: 99%

“…The Gap is obtained by the Hamilton (2017) method. Oliveira and Curi (2016) found a negative relationship between the output gap and the disagreement in exchange rate expectations for the Brazilian case Public debt as a proportion of GDP (Debt) Following Montes and Luna (2018), the variable "Debt" is the series "Gross general government debt (% GDP)" (series 4,537, obtained from the CBB). Once the public debt rises and threatens its sustainability, uncertainties are generated regarding the future behavior of the exchange rate; thus we expect a positive relationship between the public debt and the disagreement in expectations about the exchange rate Budget balance as a proportion of GDP (Budget) This is the series "PBSR (%GDP) -Flows accumulated in 12 months -Primary result -Total -Consolidated public sector -%" (series 5,793, obtained from the CBB).…”

Section: Appendixmentioning

confidence: 99%

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Sovereign credit news and disagreement in expectations about the exchange rate: evidence from Brazil

Oliveira

Montes

2020

JES

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PurposeCredit rating agencies (CRAs) are perceived as highly influential in the financial system since their announcements can affect several players in the financial markets, from big private financial and non-financial companies and their financial markets experts to sovereign states. In this sense, this study investigates whether sovereign credit news issued by CRAs (measured by comprehensive credit rating (CCR) variables) affect the uncertainties about the exchange rate in the future (captured by the disagreement about exchange rate expectations). The study is relevant once there is evidence indicating that CRAs' assessments are responsible for affecting international capital flows and, thus, sovereign rating changes can affect the expectations formation process regarding the exchange rate. In addition, there is evidence indicating that the disagreement about exchange rate expectations affects the disagreement about inflation expectations, which brings consequences to policymakers.Design/methodology/approachThe dependent variables are the disagreement in expectations about the Brazilian exchange rate for different forecast horizons, 12, 24 and 36 months ahead and the first principal component of theses series. On the other hand, the CCR variables are built upon the long-term foreign-currency Brazilian bonds ratings, outlooks and credit watches provided by the main CRAs. Estimates are obtained using ordinary least squares (OLS) and generalized method of moments (GMM); a dynamic analysis is performed using vector-autoregressive (VAR) through impulse-response functions.FindingsNegative (positive) sovereign credit news, given by a rating downgrade (upgrade) and/or a negative (positive) outlook/watch status, increase (decrease) the disagreement about exchange rate expectations. This result holds for all disagreement and CCR variables.Practical implicationsThe study brings practical implications to both private agents (mainly financial market experts) and policymakers. An important practical implication of the study concerns the ability of CRAs to affect the expectations formation process of financial market experts regarding the future behavior of the exchange rate. When a CRA issues a signal of improvement in a country's sovereign rating, this signal reflects the perception of improvement in macroeconomic fundamentals and reduction of uncertainties about the country's ability to honor its financial obligations, which therefore, facilitates the expectations formation process, causing a reduction in the disagreement about the exchange rate expectations. With respect to the consequences for policymakers, they will have more difficulty in guiding expectations in a country with a worse sovereign risk rating, where agents have difficulties in forming expectations and the disagreement in expectations is greater.Originality/valueThe study is the first to analyze the impact of CRAs' announcements on the disagreement about exchange rate expectations. Moreover, it connects the literature that investigates the effects of sovereign credit news on the economy with the literature that examines the main determinants of disagreement in expectations about macroeconomic variables.

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Section: Discussionmentioning

confidence: 99%

Section: Appendixmentioning

confidence: 99%

Section: Appendixmentioning

confidence: 99%

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Sovereign credit news and disagreement in expectations about the exchange rate: evidence from Brazil

Oliveira

Montes

2020

JES

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“…The researches make a hypothesis that the implementation of discretionary fiscal policy creates different expectations about the level of public debt and budget balance (Montes, Luna, 2018). However, it is defined that fiscal policy is predictable, and its consequences depend on the degree of its influence on the expectations (Cavallari, Romano, 2017).…”

Section: Approaches To the Formation Of Fiscal Policymentioning

confidence: 99%

Fiscal Policy and Institutional Budget Architectonics

Чугунов¹,

Makohon²,

Krykun³

2020

BJES

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The purpose of the article is to study the role of fiscal policy in the context of the development of institutional budget architectonics aimed at ensuring macroeconomic stability, boosting economic growth, strengthening human potential, improving public welfare and defining approaches to its formation in advanced and transition economies. Comparative and factor methods make it possible to cover the peculiarities of institutional environment of the formation of fiscal policy in EU countries and Ukraine in the context of the development of the institutional budget architectonics and to identify ways for its improvement. Methodology. Substantiation of the role of fiscal policy in terms of the development of institutional budget architectonics, determination of its strategic orientations are based on generalization and systematization of experience of advanced and transition economies. For this very reason, the authors analyse and assess the fiscal policy and define special aspects of the formation and implementation of its components in relevant countries. Results show that to increase the effectiveness of the fiscal policy, it is expedient to ensure its interrelation with other components of financial policy based on a combination of fiscal and motivation function. Effective institutional budget architectonics provides means for creating conditions for sustainable economic growth, achieving strategic goals of socio-economic development of the country. Significant tasks of the development of institutional budget architectonics are regulation of the ratio between direct and indirect tax revenues, the structure of budget expenditures in terms of functional, economic classifications, maintaining the budget gap and public debt at the level that contributes to the financial and economic stability of the country, taking into account economic cyclical nature. Practical implications. A feasible budget architectonics would facilitate the maintenance of macroeconomic stability and accelerate economic growth. It is expedient to carry out institutional changes of budget architectonics on the ground of dynamic interconnection of budget and macroeconomic indicators. Value/originality. Fiscal policy plays a significant part in the process of government regulation of socio-economic development of the country. Elaboration of fiscal policy approaches in the context of the development of institutional budget architectonics is an important prerequisite for improving the quality of budget planning, ensuring the strength, stability and dynamic balance of the budget system. It is advantageous to introduce adaptive institutional changes into the budget architectonics in order to accelerate economic growth. Therefore, the article covers the essence and role of institutional budget architectonics aimed at ensuring macroeconomic stability, accelerating economic growth, developing human potential, improving public welfare; it defines the approaches to its development in transition and advanced economies. The authors establish that effective f...

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“…Segundo Mankiw et al (2003), os agentes podem apresentar discordância em suas expectativas e, por conseguinte, diferir acerca do comportamento futuro de diferentes variáveis econômicas. Para Montes e Luna (2018), a literatura que aborda o desacordo de expectativas tem buscado entender quais são suas fontes, suas consequências, como medi-lo e como vinculá-lo com as incertezas apresentadas em relação ao futuro de diversas variáveis macroeconômicas (tais como, inflação, dívida pública e produto).…”

Section: Introductionunclassified

Evidências empíricas do efeito da comunicação fiscal sobre as incertezas em relação à taxa de juros: uma análise para o Brasil/ Empirical evidence of the effect of fiscal communication on interest rate uncertainties: an analysis for Brazil

Luna

Barbosa

2020

BASR

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Discretionary fiscal policy and disagreement in expectations about fiscal variables empirical evidence from Brazil

Cited by 18 publications

References 39 publications

Sovereign credit news and disagreement in expectations about the exchange rate: evidence from Brazil

Sovereign credit news and disagreement in expectations about the exchange rate: evidence from Brazil

Fiscal Policy and Institutional Budget Architectonics

Evidências empíricas do efeito da comunicação fiscal sobre as incertezas em relação à taxa de juros: uma análise para o Brasil/ Empirical evidence of the effect of fiscal communication on interest rate uncertainties: an analysis for Brazil

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