New Economics Papers
on Central and South America
Issue of 2012‒07‒14
eleven papers chosen by

  1. The effectiveness of forex interventions in four latin american countries By Carmen Broto
  2. Unemployment Insurance and Search Effort in Chile By Cristobal Huneeus; Silvia Leiva; Alejandro Micco
  3. "Simulations of Full-Time Employment and Household Work in the Levy Institute Measure of Time and Income Poverty (LIMTIP) for Argentina, Chile, and Mexico" By Thomas Masterson
  4. The Euro Experience: A Review of the Euro Crisis, Policy Issues, Issues Going Forward and Policy Implications for Latin America By Carlos Hurtado
  5. Budgeting for results in Latin America: Conditions for its deployment and development By Gabriel Filc; Carlos Scartascini
  6. Forecasting Inflation Risks in Latin America: A Technical Note By Rodrigo Mariscal; Andrew Powell
  7. Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be? By Andrew Powell; Pilar Tavella
  8. Structural Reforms in Brazil: Progress and Unfinished Agenda By Teresa Ter-Minassian
  9. Mobility and Entrepreneurship in Ecuador: A Pseudo-Panel Approach By Xavier Ordeñana; Ramon Villa
  10. Credit, Labor Informality and Firm Performance in Colombia By Lorena Caro; Arturo Galindo; Marcela Melendez
  11. Impact Evaluation of a Privately Managed Tuition-Free Middle school in a Poor Neighborhood in Montevideo By Cid, Alejandro; Balsa, Ana

  1. By: Carmen Broto (Banco de España)
    Abstract: Many central banks actively intervene in the foreign exchange (forex) market, although there is no consensus on its impact on the exchange rate level and volatility. We analyze the effects of daily forex interventions in four Latin American countries with inflation targets — namely, Chile, Colombia, Mexico and Peru — by fi tting GARCH-type models. These countries represent a broad span of intervention strategies in terms of size and frequency, ranging from pure discretionality to intervention rules. We also provide new evidence on the presence of asymmetries, which arise if foreign currency purchases and sales have different effects on the exchange rate. We find that first interventions, either isolated or initial in a rule, reduce exchange rate volatility, although their size plays a minor role. Our results support the signaling effect of interventions under inflation targeting regimes
    Keywords: Exchange rate volatility; Foreign exchange interventions; GARCH
    JEL: F31 G15 C54
    Date: 2012–07
  2. By: Cristobal Huneeus; Silvia Leiva; Alejandro Micco
    Abstract: Unemployment is a pressing problem in many countries in Latin America. Financial crises and increased globalization increase job turnover and therefore the risk of unemployment. To protect workers, Chile implemented an innovative unemployment insurance (UI) system. UI protects workers but creates moral hazard and self-selection issues. Using administrative data for the period 2007 to 2010, the effect of the 2009 reform of UI on job search behavior was studied. The results revealed different job search behavior between workers who use unemployment benefits and those who do not. Search efforts were found to fall as long as unemployment benefits are in place. There is strong evidence that workers who decide not to take UI despite having the right to do so have a higher probability of finding a new job.
    JEL: E24 J64 J65
    Date: 2012–06
  3. By: Thomas Masterson
    Abstract: The method for simulation of labor market participation used in the LIMTIP models for Argentina, Chile, and Mexico is described. In each case, all eligible adults not working full-time were assigned full-time jobs. In all households that included job recipients, the time spent on household production was imputed for everyone included in the time-use survey. The feasibility of assessing the quality of the simulations is discussed. For each simulation, the recipient group is compared to the donor group, both in terms of demographic similarity and in terms of the imputed usual hours, earnings, and household production produced in the simulation. In each case, the simulations are of reasonable quality, given the nature of the challenges in assessing their quality.
    Keywords: Labor Force Simulation; Time Use; Household Production; Poverty; LIMTIP; Argentina; Chile; Mexico
    JEL: C14 C40 D31 J22
    Date: 2012–07
  4. By: Carlos Hurtado
    Abstract: This policy brief reviews the experience of the countries under the Euro currency, focusing on those that have been under significant pressure in recent years— Greece, Ireland, Portugal and Spain, referred to as “emerging” economies. At first they experienced stable growth and converged to the most advanced countries, but subsequent adjustment has proven elusive due to macroeconomic conditions, worsening structural deficiencies, and incomplete integration. The conditions for the survival of the Euro zone are complex and still far from fulfillment. While Latin America has recently experienced a similar period of stable growth, there is no room for complacency. The main lesson from Europe’s experience is that Latin America must take advantage of the current context of growth, stability and optimism in order to carry out much-needed reforms that will leave countries adequately prepared to face a downturn in the world economy.
    JEL: E42 E61 E65
    Date: 2012–06
  5. By: Gabriel Filc; Carlos Scartascini
    Abstract: Given current evidence of potential tangible benefits, in terms of public expenditure sustainability, efficiency and effectiveness, from more efficient utilization of budgeting for results, how can we explain the uneven development of this process in Latin America and the Caribbean? This paper analyzes the conditions that favor its implementation (institutional conditions, motivation, capacities, and legal support), and provides policy recommendations aimed at increasing the likelihood that countries will eventually introduce budgeting for results and in its total utilization once these systems are in course.
    JEL: H11 H50 H60
    Date: 2012–06
  6. By: Rodrigo Mariscal; Andrew Powell
    Abstract: There are many sources of inflation forecasts for Latin America. The International Monetary Fund, Latin Focus, the Economist Intelligence Unit and other consulting companies all offer inflation forecasts. However, these sources do not provide any probability measures regarding the risk of inflation. In some cases, Central Banks offer forecast and probability analyses but typically their models are not fully transparent. This technical note attempts to develop a relatively homogeneous set of methodologies and employs them to estimate inflation forecasts, probability distributions for those forecasts and hence probability measures of high inflation. The methodologies are based on both parametric and non-parametric estimation. Results are given for five countries in the region that have inflation targeting regimes.
    JEL: C53 E37
    Date: 2012–06
  7. By: Andrew Powell; Pilar Tavella
    Abstract: This paper analyzes capital inflow surges in emerging economies from 1980 to 2005. Estimated probit models are used, which discriminate well between surges associated with banking crises or recessions, and those surges that end without such events. The results indicate that the composition of inflows and the extent of financial reform are significant determinants of outcomes. Estimated models are applied to the Latin American post-2005 inflow surge and find relatively high estimated probabilities for banking crises and recessions. This suggests that recent inflow surges characterized by high portfolio and banking inflows are a potential cause for concern and that the results constitute a prima facie case for macro prudential interventions.
    JEL: C25 E44 F34 G01
    Date: 2012–06
  8. By: Teresa Ter-Minassian
    Abstract: This paper discusses Brazil’s structural reforms since the 1990s and areas where work remains to be done. Reforms of the 1990s included the containment of inflation, the adoption of a comprehensive Fiscal Responsibility Law, a successful debt restructuring program for subnational governments, the reduction of trade barriers, a wave of privatizations, and the expansion of health and education programs. Reforms of the 2000s included strengthening welfare programs, rapidly increasing the minimum wage, and reforming the financial sector to increase access to credit among lower income groups. Political opposition and other factors, however, have prevented reforms in the tax and pension systems and in the labor market. Brazil’s recent strong economic performance owes more to generally sound macroeconomic management, and to a favorable external environment, than to a comprehensive and sustained structural reform effort. Doubts remain about the country’s ability to sustain high growth rates while keeping inflation low.
    JEL: E02 E61 E65
    Date: 2012–05
  9. By: Xavier Ordeñana; Ramon Villa
    Abstract: Does entrepreneurship contribute to improving social mobility in Ecuador? This paper constructs a pseudo-panel to analyze the dynamic effect of entrepreneurship on Ecuadorian household incomes during the period 2002-2010. Using three estimation scenarios, the paper finds a significant level of unconditional mobility and an important effect of entrepreneurship (conditional mobility).
    JEL: J16 L26 M13
    Date: 2012–07
  10. By: Lorena Caro; Arturo Galindo; Marcela Melendez
    Abstract: This paper explores the links between labor formality, access to credit and firm performance in Colombia using Annual Manufacturing Survey data for the period 2000-2009. A significant though small relationship is found between access to credit and informality. The results suggest that a 10 percent increase in the ratio of credit to sectoral output increases labor formality between 0. 76 and 1. 14 percentage points. This effect vanishes as a firm’s financial constraint increases. The paper also reports a strong correlation between labor formality and firm performance measured as output and employment growth. A one percentage point increase in labor formality is associated with an 8. 5 percent increase in output and an 11 percent increase in employment growth.
    JEL: E26 G21 O16 O4
    Date: 2012–06
  11. By: Cid, Alejandro; Balsa, Ana
    Abstract: Using a randomized trial, we evaluate the impact of a free privately-managed middle school in a poor neighborhood. The research compares over time adolescents randomly selected to enter Liceo-Jubilar and those that were not drawn in the lottery. Besides positive impacts on expectations, we find better educational outcomes in the treatment group relative to control subjects. The features of Liceo-Jubilar -autonomy of management, capacity for innovation, and adaptation to the context- contrast with the Uruguayan highly centralized and inflexible public education system. Our results shed light on new approaches to education that may contribute to improve opportunities for disadvantaged adolescents in developing countries. Unlike the experiences of charter schools in developed countries, Liceo-Jubilar does not have autonomy regarding the formal school curricula nor depends on public funding by any means.
    Keywords: Education; Field Experiment; Poverty; Impact Evaluation
    JEL: I21
    Date: 2012

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