Vol. 23 No. 1 (2003): Jan-Mar / 2003

Vol. 23 No. 1 (2003)

Jan-Mar / 2003
Published January 1, 2003


Feldstein-Horioka corelation: indicator of capital mobility or solvency?
Fabiana Rocha
Brazilian Journal of Political Economy

The purpose of this paper is to use the intertemporal open macro models, and the solvency econometric tests derived from them, to analyze the original Feldstein and Horioka saving-investment correlation. The solvency constraint implies that saving and investment are cointegrated with a coefficient of one and, therefore, that the current account is stationary. Since the Feldstein-Horioka cross-section regression measures the average longrun coefficient, it is possible then to argue that it is capturing the unit coefficient implied by the solvency constraint and not some measure of capital mobility.

JEL Classification: C23; F31.

Country risk endogeneity, capital flows and capital controls in Brazil
Flávio Vieira, Márcio Holland
Brazilian Journal of Political Economy

The main goal of the paper is to analyze the relationship between capital flows, country risk, capital controls and interest rate differential in Brazil since the mid of 90s. We know how controversial is the role and the effectiveness of capital controls during episodes of crises, and how emerging countries can be trapped in a vicious circle expressed through the behavior of two crucial variables: the country risk and the interest rate. Empirical results suggest that interest rate differential is endogenous to country risk, mainly explained when we consider the existence of a probability of default in the context of a high public debt.

JEL Classification: F30; E43; E44.

The 2002 crash: from “irrational exuberance” to “infectious greed”
Maryse Farhi, Marcos Antonio Macedo Cintra
Brazilian Journal of Political Economy

This paper is an attempt to discuss the macroeconomic repercussions from deinflating a speculative bubble in stock markets and from an established low price trend. Revelations accrued this low price trend how comprise recommendations by financial analysts, corporation balance sheets, auditing companies and credit rating agencies make the asset pricing difficult, affect confidence by financial agents and contaminate their expectations. The crisis of confidence brought about by these revelations can potentially impact on economic growth of developed countries, beginning with the USA, raise risk aversion by investors and trigger reinforced regulation and supervision mechanisms in detriment to auto-regulating ones which had been prevailing up to the present moment.

JEL Classification: F65; G14; G23.

Balance-of-payments-constrained economic growth in Brazil
Frederico Gonzaga Jayme Jr.
Brazilian Journal of Political Economy

This paper applies the Thirlwall’s balance-of-payments constraint model to Brazilian economic growth in the period 1955-98, using cointegration technique. According to Thirlwall (1979) and MacCombie and Thirlwall (1994) differences in long-term economic growth among countries can be explained by a demand induced theory of economic growth. The model is tested on the Brazilian economy after industrial take- off in 1955 until 1998 using the cointegration technique and a vector error correction (VEC) representation to find the dynamic responses of exports to GDP. The results show that there is a positive cointegration between growth in exports and long-term economic growth in Brazil, which support the fact external factors constraint Brazilian economic growth.

JEL Classification: E12; O10.

Technological progress, terms of trade and uneven development
José Luís Oreiro
Brazilian Journal of Political Economy

This article presents a modified version of Dutt’s two sector growth model, with the purpose of demonstrate the existence of an inverse relationship between decline in terms of trade and uneven development between North and South. It is shown that in the case where technological progress is reversible in the sense that firms in the North can revert to the adoption of technologies intensive in the use of primary goods manufactured in the South, this reversion been induced by the decline in terms of trade; this decline will be followed by a reduction, not by an increase, in the capital stock in the North relative to the capital stock in the South. This result is a generalization of Dutt’s model, which considers a situation where technological progress is irreversible.

JEL Classification: O1; O11; O41.

Central Bank independence and policy coordination: advantages and disadvantages of two structures for stabilization
Helder Ferreira de Mendonça
Brazilian Journal of Political Economy

Nowadays, the orthodox conventional wisdom believes that the adoption of an independent central bank improves the alignment of fiscal policy with monetary policy, and thus, increases the coordination between fiscal and monetary authorities. However, the idea of coordination cannot be reduced to this. This paper makes a brief analysis concerning the advantages and disadvantages that belong to the independence of the central bank proposition and coordination between monetary and fiscal policies. The findings denote that the coordination of policies is a better framework to achieve the several macroeconomic goals.

JEL Classification: E52; E58; E61.

An Empirical Study of Private Saving in Brazil
Claudio Paiva, Sarwat Jahan
Brazilian Journal of Political Economy

This paper provides an empirical analysis of the determinants of private saving in Brazil during 1965-2000. Our estimates indicate that the degree of offset between private and public saving is relatively high, in line with evidence for other Latin American countries, although it may have started to decline in recent years. In any case, fiscal policy is identified as one of the main instruments to promote the much needed increase in national saving in Brazil. Additional support to savings could come from continued financial market reforms and trade diversification.

JEL Classification: E21; E22.

On the intentionality of the industrializing politics of Brazil in the 1930s
Pedro Cezar Dutra Fonseca
Brazilian Journal of Political Economy

From the contributions of institutional theorists, the widespread proposition, begun with Celso Furtado’s work, that the significant growth of the Brazilian transformation industry in the 1930s happened with no intention or awareness from the federal administration since it derived from the policy of defense of the coffee export is criticized. For this matter, after rebuilding Furtado’s thought on the subject, we argue that by that decade there was enough empirical evidence to show the intent and the administration towards industrialization so that it cannot be considered a mere “byproduct” of the exchange and monetary policies regarding the defense of the coffee economy.

JEL Classification: N16; N26; O14; O43; O54.


Inflation adjusted nominal deficit: a note on Robert Barro’s definition
Viviane Luporini
Brazilian Journal of Political Economy

This note discusses the concept of ‘inflation adjusted nominal deficit’ proposed by Robert Barro in light of a stock-flow consistent real deficit. It is argued that the calculation proposed by the author violates the principle of stock-flow consistency and leads one to the erroneous interpretation that a rise in the rate of inflation de- creases the government deficit in nominal terms.

JEL Classification: E31; E62.

The Brazilian Swindle and the Larger International Monetary Problem
James K. Galbraith
Brazilian Journal of Political Economy

The IMF’s recent loan to Brazil is the best seen as a mechanism of political control rather than economic assistance, except in a very unsustainable short run. Thus hard choices between the priorities of Brazil’s working population and those of international creditors cannot be avoided. This essay explores policy options, and goes on to suggest that while the financial sector is certain to dominate American policy discussion in these matters, it would be wiser to view the larger national economic interest of the United States as aligned with those who advocate stable and sustainable national development in Brazil.

JEL Classification: F34.