Miller, Marcus, 1941-, Thampanishvong, Kannika and Zhang, Lei, Dr. (2003) Learning to forget? Contagion and political risk in Brazil. Discussion Paper. London: Centre for Economic Policy Research (Great Britain). (Discussion paper (Centre for Economic Policy Research (Great Britain)).

Preview

PDF WRAP_Miller_CEPR-DP3785[1].pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (726Kb)

Abstract

We examine whether Brazilian sovereign spreads of over 20% in 2002 could be due to contagion from Argentina or to domestic politics, or both. Treating unilateral debt restructuring as a policy variable gives rise to the possibility of self-fulfilling crisis, which can be triggered by contagion. We explore an alternative political-economy explanation of panic in financial markets inspired by Alesina (1987), which stresses exaggerated market fears of an untried Left-wing candidate. To account for the fall of sovereign spreads since the election, we employ a model of Bayesian learning and analyse the effects of contagion and IMF commitments.

Item Type:	Working or Discussion Paper (Discussion Paper)
Subjects:	F History United States, Canada, Latin America > F1201 Latin America (General) H Social Sciences > HJ Public Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Bayesian statistical decision theory, Debts, Public -- Brazil, Contagion (Social psychology) -- Brazil, Brazil -- Economic conditions -- 1985-
Series Name:	Discussion paper (Centre for Economic Policy Research (Great Britain))
Publisher:	Centre for Economic Policy Research (Great Britain)
Place of Publication:	London
Date:	February 2003
Number:	No.378
Number of Pages:	30
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	R000239216 (ESRC)
References:	Agénor, P., Miller, M., Vines, D., and Weber, A. (eds.) (1999) The Asian Financial Crisis: Causes, Contagion and Consequences , Cambridge University Press Alesina, A. (1987), “Macroeconomic Policy in a Two-Party System as a Repeated Game,” The Quarterly Journal of Economics, Vol. 102, No. 3, pp. 651-678. Atkeson, A. (2000), “Comment on Morris and Shin,” NBER Macroeconomics Annual, The MIT Press, Cambridge. Boonprakaikawe, J. and Ghosal, S. (2000), “ Bank runs and noisy signals,” mimeo, University of Warwick. 23 Calvo, G. A., Izquierdo, A. and Talvi E. (2002). ‘Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina’s Lessons’, Mimeo. Inter-American Development Bank (July). Colitt, R., “The Americas: Lula has first-round Brazilian poll victory in sight,” The Financial Times, September 19, 2002. Cripps, M. (1991) “Learning Rational Expectations in a Policy Game,” Journal of Economic Dynamic and Control, vol. 15, pp. 297-315. Driffill, J. and Miller, M. (1992), “Learning and inflation convergence in the ERM”, The Economic Journal, vol. 103(417), pp. 369-378. Economist, The (2003), “Lula’s burden of hope,” January 4, pp. 39-40. Edwards, S., “Brazil’s only hope of avoiding collapse,” The Financial Times, August 5, 2002. Ellison, M. and Valla N. (2001), “Learning, Uncertainty and Central Bank Activism in an Economy with strategic factors,” Journal of Monetary Economics, vol. 48, pp. 153- 171. Favero, C. and Giavazzi, F. (2002), “Why are Brazil’s Interest Rates so High?,” IGIER, Università Bocconi, Milanno, July 14, 2002. Fraga, A. and Goldfajn, I., “Trust Brazil,” The Financial Times, September18, 2002. Fratzscher, M. (2000), “What Causes Currency Crises: Sunspots, Contagion or Fundamentals?” Mimeo EUI (also available at www.csgr.org). Fratzscher, M. (2002), “On Currency Crises and Contagion”. ECB Working Paper No. 139, April 2002 Ghosal, S. and Miller, M. (2002), “ Co-ordination Failure, Moral Hazard and Sovereign Bankruptcy Procedures,” Mimeo, University of Warwick (also available at www.csgr.org) IMF (2002) “IMF Approves US$30.4 Billion Stand-By Credit for Brazil,” International Monetary Fund, Press Release No. 02/40, September 6, 2002. Kim, J. Y. (2001), “Currency Crisis Contagion, Capital Flows, and Sovereign Ratings: Empirical Studies on (Asian) Emerging Markets,” Ph.D dissertation, University of Warwick. 24 Masson, P. (1999), “Contagion: monsoonal effects, spillovers and jumps between multiple equilibria,” in P. Agénor et al (eds.) The Asian Financial Crisis: Causes, Contagion and Consequences, Cambridge University Press, pp. 265-280. Miller, M., Weller, P. and Zhang, L. (2001), “Moral Hazard and the US Stock Market: Analysing the ‘Greenspan put’,” The Economic Journal, March 2002. Morris, S. and Shin, H. S. (2000), “Rethinking Multiple Equilibria in Macroeconomic Modelling,” NBER macroeconomics conference, April 2000. Obstfeld, M. (1996), “Models of Currency Crises with Self-Fulfilling Features,” European Economic Review, April 1996, 40(3-5), pp. 1037-1047. Rodrik, D. and Velasco, A. (1999), “Short-Term Capital Flows,” NBER Working Paper Series, Working Paper 7364, http://www.nber.org/papers/w7364. Rosal, J. M. and Spagat M. (2003), “Structural uncertainty and central bank conservatism: the ignorant should shut their eyes”, mimeo, Royal Holloway College, University of London, January. Sachs, J., Tornell, A. and Velasco, A. (1996), “The Mexican peso crisis: Sudden death or death foretold?,” Journal of International Economics , vol.41, pp. 265-283. Thampanishvong, K. (2002), “Incorporation of Electoral Uncertainty into the Crisis Model with Self-fulfilling Feature” MSc dissertation, University of Warwick. Williamson, J. (2002), “Is Brazil next?” International Economics Policy Briefs, PB02-7, Washington DC: Institute for International Economics. Wolf, M. (2003), Why Debt is such a burden to Latin American Countries,” Financial Times, Page 19, January 22, 2003.
URI:	http://wrap.warwick.ac.uk/id/eprint/1695

Request changes to a record

Actions (login required)

View Item