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    Does curvature enhance forecasting?
    (Banco Central do Brasil, 2008) Almeida, Caio Ibsen Rodrigues de; Gomes, Romeu; Leite, André; Vicente, José
    In this paper, we analyze the importance of curvature term structure movements on forecasts of interest rates. An extension of the exponential three-factor Diebold and Li (2006) model is proposed, where a fourth factor captures a second type of curvature. The new factor increases model ability to generate volatility and to capture nonlinearities in the yield curve, leading to a significant improvement of forecasting ability. The model is tested against the original Diebold and Li model and some other benchmarks. Based on a forecasting experiment with Brazilian fixed income data, it obtains significantly lower bias and root mean square errors for most examined maturities, and under three different forecasting horizons. Robustness tests based on two sub-sample analyses partially confirm the favorable results
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    Approximating risk premium on a parametric arbitrage-free term structure model
    (FGV EPGE, 2014) Almeida, Caio Ibsen Rodrigues de
    In this paper we approximate the risk factors of a polynomial arbitrage-free dynamic term structure model by running a sequential set of linear regressions independent across time. This approximation avoids full optimization in the estimation process allowing for a simple method to extract the risk premium embedded in interest rate instruments. Closed-form bond pricing formulas provide a clear interpretation of each source of aggregate risk as known term structure movements. Assuming, for illustrative purposes, the existence of three sources of aggregate risk (level, slope and curvature) in the economy, we test the validity of our approximation adopting a dataset of Brazilian zero coupon interest rate swaps. The new methodology generates accurate parameters, standard deviations and risk premium dynamics when compared to the exact dynamic model.
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    Pricing options embedded in debentures with credit risk
    (2015) Almeida, Caio Ibsen Rodrigues de; Pereira, Leonardo Tavares
    In this article, we develop a strategy to simultaneously extract a yield curve and price call options embedded in debentures subject to credit risk. The implementation is based on a combination of two methods: term structure estimation adopting the Nelson-Siegel model sequentially followed by the use of the spread-curve (term structure of debentures minus local inter-bank risk-free rate) to calibrate a trinomial tree for short-term interest rates making use of the Hull and White model (1993). The proposed methodology allows us to price embedded options making debentures with and without embedded options comparable on a common basis. As a consequence, since a large number of the existing Brazilian debentures contain embedded options, our methodology increases the number of debentures available to estimate a term structure for Brazilian local fixed income bonds. We illustrate the method by pricing a call option for a debenture issued by the company “Telefonica Brasil”.
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    Option pricing under multiscale stochastic volatility
    (2015) Tessari, Cristina; Almeida, Caio Ibsen Rodrigues de
    The stochastic volatility model proposed by Fouque, Papanicolaou, and Sircar (2000) explores a fast and a slow time-scale fluctuation of the volatility process to end up with a parsimonious way of capturing the volatility smile implied by close to the money options. In this paper, we test three different models of these authors using options on the S&P 500. First, we use model independent statistical tools to demonstrate the presence of a short time-scale, on the order of days, and a long time-scale, on the order of months, in the S&P 500 volatility. Our analysis of market data shows that both time-scales are statistically significant. We also provide a calibration method using observed option prices as represented by the so-called term structure of implied volatility. The resulting approximation is still independent of the particular details of the volatility model and gives more flexibility in the parametrization of the implied volatility surface. In addition, to test the model’s ability to price options, we simulate options prices using four different specifications for the Data generating Process. As an illustration, we price an exotic option.
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    Bright minds, big rent: gentrification and the rising returns to skill
    (2015-11) Edlund, Lena; Machado, Cecilia; Sviatchi, Michaela
    In 1980, housing prices in the main US cities rose with distance to the city center. By 2010, that relationship had reversed. We propose that this development can be traced to greater labor supply of high-income households through reduced tolerance for commuting. In a tract-level data set covering the 27 largest US cities, years 1980-2010, we employ a city-level Bartik demand shifter for skilled labor and find support for our hypothesis: full-time skilled workers favor proximity to the city center and their increased presence can account for the observed price changes, notably the rising price premium commanded by centrality.
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    Regulatory reform in the brazilian railway sector: a preliminary assesment
    (2015) Sampaio, Patrícia Regina Pinheiro; Dutra, Joísa Campanher; Gonçalves, Edson Daniel Lopes; Daychoum, Mariam Tchepurnaya; Palermo, Bruno Beier
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    Transformação estrutural, serviços e política industrial
    (FGV Crescimento e Desenvolvimento, 2014-10-07) Ferreira, Pedro Cavalcanti
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    Estimating Brazilian monthly GDP: a state-space approach
    (FGV Crescimento e Desenvolvimento, 2015-07-10) Issler, João Victor; Notini, Hilton Hostalácio
    This paper has several original contributions. The rst is to employ a superior interpolation method that enables to estimate, nowcast and forecast monthly Brazilian GDP for 1980-2012 in an integrated way; see Bernanke, Gertler and Watson (1997, Brookings Papers on Economic Activity). Second, along the spirit of Mariano and Murasawa (2003, Journal of Applied Econometrics), we propose and test a myriad of interpolation models and interpolation auxiliary series all coincident with GDP from a business-cycle dating point of view. Based on these results, we nally choose the most appropriate monthly indicator for Brazilian GDP. Third, this monthly GDP estimate is compared to an economic activity indicator widely used by practitioners in Brazil- the Brazilian Economic Activity Index - (IBC-Br). We found that the our monthly GDP tracks economic activity better than IBC-Br. This happens by construction, since our state-space approach imposes the restriction (discipline) that our monthly estimate must add up to the quarterly observed series in any given quarter, whichmay not hold regarding IBC-Br. Moreover, our method has the advantage to be easily implemented: it only requires conditioning on two observed series for estimation, while estimating IBC-Br requires the availability of hundreds of monthly series. Third, in a nowcasting and forecasting exercise, we illustrate the advantages of our integrated approach. Finally, we compare the chronology of recessions of our monthly estimate with those done elsewhere.
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    Teste de sustentabilidade da dívida, ajuste fiscal no Brasil e consequências para o produto
    (FGV Crescimento e Desenvolvimento, 2015) Bicalho, Aurélio; Issler, João Victor
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    As fontes do atraso e das flutuações cíclicas brasileiras
    (FGV Crescimento e Desenvolvimento, 2015-07-10) Ferreira, Pedro Cavalcanti; Gomes, Victor; Ourives, Lígia Helena da Cruz
    O objetivo deste artigo é identificar as fontes de crescimento de longo prazo e dos movimentos cíclicos do produto na economia brasileira. Buscamos entender as fontes de atraso da economia brasileira e os determinantes dos movimentos cíclicos do produto que tornam as recessões custosas. Para estudar fatores de longo praza utilizamos metodologia de descomposição de crescimento e para estudar movimentos cíclicos trabalhamos com métodos de contabilidade de cíclos e 'wedges'. Mostramos que as distorções às decisões dos agentes - e.g., fricções no mercado de trabalho - possuem um papel importante nas flutuações econômicas e até mesmo no longo prazo.
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    Duros Desafios à Frente
    (FGV Crescimento e Desenvolvimento, 2014-12-17) Ferreira, Pedro Cavalcanti; Cardoso, Renato Fragelli
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    The long term effects of Bolsa Família on child labour and school enrolment
    (FGV Crescimento e Desenvolvimento, 2015-05-14) Peruffo, Marcel Cortes; Ferreira, Pedro Cavalcanti
    In this paper we study the e ects of conditional cash transfers in school enrolment and tackling child labour. We develop a dynamic heterogeneous agent general equilibrium model, where households face a set of tradeo s while allocating their children's time in leisure activities, schooling and working. We calibrate the model using data from the Brazilian survey PNAD, before the policy was implemented, in order to quantify the e ects of a conditional transfer. We then evaluate the results of a policy experiment that implements a conditional cash transfer scheme similar to the Brazilian Bolsa Fam lia. Our results suggest that the program, in the long term, is able to substantially increase school registration and reduce child labour and poverty. In addition, we nd out that a progressive conditional cash transfer results is even more e ective in tackling child labour and increasing school enrolment.
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    O desenvolvimento econômico brasileiro no pós-guerra
    (FGV Crescimento e Desenvolvimento, 2015) Ferreira, Pedro Cavalcanti; Veloso, Fernando A.
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    Apresentação 6: Produção de pesquisa e impacto na sociedade – Os casos dos Projetos 'Democracia digital', 'Impactos de grandes empreendimentos' e 'Indicadores do estado de direito'
    (2015) Costa, Francisco Junqueira Moreira da
    Este estudo investiga os desafios e oportunidades do licenciamento ambiental de grandes empreendimentos