http://www.bis.org/cbhub/list/country/country_portugal/index.rss Latest research hub papers from Portugal en http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201211.pdf Bank of Portugal Working papers by Caterina Mendicino Collateral Requirements: Macroeconomic Fluctuations and Macro-Prudential Policy 2012-04-26T17:38:00Z What are the macroeconomic implications of higher leveraged borrowing? To address this question, we develop a business cycle model with credit frictions in which firms reallocate capital among themselves through the credit market. We find that looser collateral requirements moderate the sensitivity of investment and output to changes in productivity but sharpen the response to shocks originated in the credit market. This result poses a challenge to the design of a macro-prudential policy framework that aims to mitigate pro-cyclicality in the financial market and improve macroeconomic stability. We document that, contrary to discretionary lower caps on loan-to-value ratios, time-varying caps that counter-cyclically respond to indicators of financial imbalances are successful in smoothing credit-cycles without increasing the sensitivity of the economy to real shocks. Further, countercyclical loan-to-value ratios also dampen macroeconomic volatility without reducing the size of the economy. Collateral Requirements: Macroeconomic Fluctuations and Macro-Prudential Policy 2012-04-26T17:38:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=678 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201211.pdf Caterina Mendicino Caterina Mendicino 2012-04 Bank of Portugal Working papers E21 E22 E32 E44 http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201209.pdf Bank of Portugal Working papers by Maximiano Pinheiro Market perception of fiscal sustainability: An application to the largest euro area economies 2012-03-29T06:23:00Z Debt intolerance may rule out fiscal trajectories which otherwise appear to be sustainable. If fiscal policy lacks credibility, the interest on the sovereign debt may rise sharply and the country may lose market access. Indicators for assessing the market perception of fiscal sustainability should complement the conventional empirical sustainability analysis. I propose an approach for extracting information from sovereign bond data, which provides snapshots of market sentiment. It is based on a multi-borrower default-intensity pricing model, allowing for the cross-section estimation (under a risk-neutral probability measure) of the term-structure of the unobservable default-free interest rates, as well as (for all sovereigns included in the sample) of the probabilities of default (for any horizon deemed relevant) and the associated recovery rates given default. The approach is illustrated by the estimation of the model for Germany, France, Italy and Spain for every Friday from October 2, 2009 to November 25, 2011. Market perception of fiscal sustainability: An application to the largest euro area economies 2012-03-29T06:23:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=670 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201209.pdf Maximiano Pinheiro Maximiano Pinheiro 2012-03 Bank of Portugal Working papers G12 H63 H68 http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201208.pdf Bank of Portugal Working papers by João Amador Competition in the Portuguese Economy:An overview of classical indicators 2012-03-28T06:23:00Z This article offers an extensive overview of competition indicators in the Portuguese economy in the period 2000-2009. The article covers qualitative competition indicators as well as classical, profitability and concentration measures, focusing on the differences between tradable and non-tradable sectors. The analysis carried out is distinct from that of competition authorities, aiming to set an overall scenario for competition developments. The article concludes that, although there are apparently no widespread problems, there is substantial room for improvements in business competition environment in several markets, notably in the non-tradable area. Competition in the Portuguese Economy:An overview of classical indicators 2012-03-28T06:23:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=669 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201208.pdf João Amador João Amador 2012-03 Bank of Portugal Working papers L10 L60 O50 http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201206.pdf Bank of Portugal Working papers by Paula Antão The dynamics of capital structure decisions 2012-03-22T06:23:59Z In this paper we explore the process of convergence to firms' target leverage ratios. Using a unique dataset of micro, small, medium and large firms, we find that this process is very fast, most notably for smaller firms. We further explore these results by analyzing different convergence trajectories. We find that firms that are currently below their target leverage ratio take more time to reach this target than firms with a symmetrical departure point. Furthermore, smaller firms are able to converge faster to their optimal capital structure, regardless of whether they have to increase or decrease their current leverage ratios. Using a duration analysis framework, we also find that firms that have to increase debt to reach their target leverage ratio take more time to do so if they have more free cash-flow. The dynamics of capital structure decisions 2012-03-22T06:23:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=667 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201206.pdf Paula Antão Paula Antão 2012-03 Bank of Portugal Working papers G32 http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201205.pdf Bank of Portugal Working papers by Mário Centeno Excess worker turnover and fixed-term contracts: Causal evidence in a two-tier system 2012-03-05T12:39:00Z Portuguese firms engage in intense reallocation, most employers simultaneously hire and separate from workers, resulting in high Excess worker turnover and fixed-term contracts: Causal evidence in a two-tier system 2012-03-05T12:39:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=662 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201205.pdf Mário Centeno Mário Centeno 2012-03 Bank of Portugal Working papers J21 J23 J63 http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201203.pdf Bank of Portugal Working papers by Luís Catela Nunes A wavelet-based assessment of market risk: The emerging markets case 2012-03-01T06:21:59Z The measurement of market risk poses major challenges to researchers and different economic agents. On one hand, it is by now widely recognized that risk varies over time. On the other hand, the risk profile of an investor, in terms of investment horizon, makes it crucial to also assess risk at the frequency level. We propose a novel approach to measuring market risk based on the continuous wavelet transform. Risk is allowed to vary both through time and at the frequency level within a unified framework. In particular, we derive the wavelet counterparts of well-known measures of risk. One is thereby able to assess total risk, systematic risk and the importance of systematic risk to total risk in the time-frequency space. To illustrate the method we consider the emerging markets case over the last twenty years, finding noteworthy heterogeneity across frequencies and over time, which highlights the usefulness of the wavelet approach. A wavelet-based assessment of market risk: The emerging markets case 2012-03-01T06:21:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=660 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201203.pdf Luís Catela Nunes Luís Catela Nunes 2012-03 Bank of Portugal Working papers C40 F30 G15 http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201204.pdf Bank of Portugal Working papers by Artur Silva Lopes Cohesion within the euro area and the U. S.: a wavelet-based view 2012-03-01T06:21:59Z The assessment of synchronization of macroeconomic fluctuations across countries or regions has been crucial, for example, for the debate on economic integration. In this paper, we propose a multivariate measure of synchronization to assess cohesion across countries or regions by resorting to wavelet analysis. This wavelet-based measure of cohesion allows one to assess how synchronization has evolved over time and across frequencies simultaneously. In particular, we investigate the cohesion among euro area countries and the cohesion within the U.S. both at the regional and state levels over the last decades. In addition, an analysis at the sectoral level is also conducted. The results obtained unveil a noteworthy heterogeneity and highlight the usefulness of a wavelet-based measure of cohesion. Cohesion within the euro area and the U. S.: a wavelet-based view 2012-03-01T06:21:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=661 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201204.pdf Artur Silva Lopes Artur Silva Lopes 2012-03 Bank of Portugal Working papers C40 E32 http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201202.pdf Bank of Portugal Working papers by António Rua Asset pricing with a bank risk factor 2012-02-12T06:23:00Z This paper studies how the state of the banking sector influences stock returns of nonfinancial firms. We consider a two-factor pricing model, where the first factor is the traditional market excess return and the second factor is the change in the average distance to default of the banking sector. We find that this bank factor is priced in the cross section of U.S. nonfinancial firms. Controlling for market beta, the expected excess return for a stock in the top quintile of bank risk exposure is on average 2.67% higher than for a stock in the bottom quintile. Asset pricing with a bank risk factor 2012-02-12T06:23:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=659 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201202.pdf António Rua António Rua 2012-02 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201121.pdf Bank of Portugal Working papers by Caterina Mendicino Housing Market Dynamics: Any News? 2012-01-23T12:37:59Z This paper quantifies the role of expectation-driven cycles for housing market fluctuations in the United States. We find that news shocks: (1) account for a sizable fraction of the variability in house prices and other macroeconomic variables over the business cycle and (2) significantly contributed to booms and busts episodes in house prices over the last three decades. By linking news shocks to agents' expectations, we find that house prices were positively related to inflation expectations during the boom of the late 1970's while they were negatively related to interest rate expectations during the housing boom that peaked in the mid-2000's. Housing Market Dynamics: Any News? 2012-01-23T12:37:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=634 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201121.pdf Caterina Mendicino Caterina Mendicino 2011-01 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201129.pdf Bank of Portugal Working papers by Paulo Soares Esteves Direct vs bottom-up approach when forecasting GDP: reconciling literature results with institutional practice 2012-01-10T09:41:59Z How should we forecast GDP? Should we forecast directly the overall GDP or aggregate the forecasts for each of its components using some level of disaggregation? The search for the answer continues to motivate several horse races between these two approaches. Nevertheless, independently of the results, institutions producing shortterm forecasts usually opt for a bottom-up approach. This paper uses an application for the euro area to show that the option between direct and bottom-up approaches as the level of disaggregation chosen by forecasters is not determined by the results of those races. Direct vs bottom-up approach when forecasting GDP: reconciling literature results with institutional practice 2012-01-10T09:41:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=647 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201129.pdf Paulo Soares Esteves Paulo Soares Esteves 2011-01 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201201.pdf Bank of Portugal Working papers by Mário Centeno Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal data 2012-01-10T09:41:59Z This paper analyses the evolution of public wages and the public-private wage gaps in the period prior to the adoption of the euro in the countries then engaged on the fulfillment of the Maastricht criteria. The wage gaps are estimated controlling for employees' observed and unobservable individual attributes, using a novel methodology of fixed effects quantile regressions. The results suggest, on the one hand, a relative moderation in the growth of public sector wages in several European countries in the 1990s. On the other hand, estimates obtainedfor the public-private wage differential imply an increase in the same period in the majority of Public-private wage gaps in the period prior to the adoption of the euro: an application based on longitudinal data 2012-01-10T09:41:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=653 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201201.pdf Mário Centeno Mário Centeno 2012-01 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201126.pdf Bank of Portugal Working papers by Antonio Rubia A Class of Robust Tests in Augmented Predictive Regressions 2011-11-18T06:23:00Z This paper focuses on the analytical discussion of a robust t-test for predictability and on the analysis of its finite-sample properties. Our analysis shows that the procedure proposed exhibits approximately correct size even in fairly small samples. Furthermore, the test is well-behaved under short-run dependence, and can exhibit improved power performance over A Class of Robust Tests in Augmented Predictive Regressions 2011-11-18T06:23:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=639 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201126.pdf Antonio Rubia Antonio Rubia 2011-11 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201127.pdf Bank of Portugal Working papers by Cristina Manteu The price elasticity of external demand: how does Portugal compare with other euro area countries? 2011-11-03T12:39:00Z This paper estimates the price elasticity of external demand of Portuguese exports in the period 1995-2009 and compares it with those of other euro area countries. This proxy of the export price elasticity is computed as a weighted average of the import demand elasticities in each individual country-product destination market, using the elasticities of substitution across imported varieties of Broda et al. (2006). Overall, Portugal tends to export to individual markets which have, on average, a lower price elasticity than the markets where other euro area countries export to. Therefore, the product and geographical composition of Portuguese exports reduces their exposure to relative price fluctuations., The price elasticity of external demand: how does Portugal compare with other euro area countries? 2011-11-03T12:39:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=645 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201127.pdf Cristina Manteu Cristina Manteu 2011-11 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201123.pdf Bank of Portugal Working papers by Luca David Opromolla Why Ex(Im)porters Pay More: Evidence from Matched Firm-Worker Panels 2011-09-23T06:21:59Z We investigate the relationship between exporting, importing, and wage premia using a rich matched employer-employee data set. We improve on the previous literature (i) by using a new methodology to quantify the contribution of an extensive set of worker- and rm-level observable and unobservable characteristics to the wage gap, and (ii) by controlling for the import as well as the export activity of the firm. These two innovations allow us to avoid large biases that characterized the previous literature. A robust result is that the hiring policy of exporters is quite different than the one of importers. While firm size and sales are, to different extents, important components of the wage gap both for exporters and importers, importers hire workers that are overwhelmingly more able than the average. Workers at exporting firms, on the contrary, are no different in terms of unobserved time-invariant characteristics.Our analysis provides a useful guidance for recent theories that aim at explaining participation both in export and import markets and at including non-neoclassical labor market features into trade models. Why Ex(Im)porters Pay More: Evidence from Matched Firm-Worker Panels 2011-09-23T06:21:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=636 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201123.pdf Luca David Opromolla Luca David Opromolla 2011-09 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201124.pdf Bank of Portugal Working papers by A. M. Robert Taylor The Impact of Persistent Cycles on Zero Frequency Unit Root Tests 2011-09-23T06:21:59Z In this paper we investigate the impact of non-stationary cycles on the asymptotic and finite sample properties of standard unit root tests. Results are presented for the augmented Dickey-Fuller normalised bias and t-ratio-based tests (Dickey and Fuller, 1979, and Said and Dickey, 1984), the variance ratio unit root test of Breitung (2002) and the M class of unit-root tests introduced by Stock (1999) and Perron and Ng (1996). The limiting distributions of these statistics are derived in the presence of non-stationary cycles. We show that while the ADF statistics remain pivotal (provided the test regression is properly augmented), this is not the case for the other statistics considered and show numerically that the size properties of the tests based on these statistics are too unreliable to be used in practice. We also show that the t-ratios associated with lags of the dependent variable of order greater than two in the ADF regression are asymptotically normally distributed. This is an important result as it implies that extant sequential methods (see Hall, 1994 and Ng and Perron, 1995) used to determine the order of augmentation in the ADF regression remain valid in the presence of non-stationary cycles. The Impact of Persistent Cycles on Zero Frequency Unit Root Tests 2011-09-23T06:21:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=637 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201124.pdf A. M. Robert Taylor A. M. Robert Taylor 2011-09 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201125.pdf Bank of Portugal Working papers by Luca David Opromolla The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs 2011-09-21T06:25:59Z International economics has overwhelmingly relied on Samuelson's (1954) assumption that trade costs are proportional to value. We develop a quantitative analytical framework that features both additive and multiplicative (iceberg) trade costs, building on a model of international trade with heterogeneous firms and demand heterogeneity. We structurally estimate the magnitude of additive trade costs, for every product and destination available in our firm-level data of Norwegian exporters. Identification is aided by the theoretical finding that the elasticity of demand to producer price is dampened, in absolute value, when prices are low, and this mechanism is magnified when additive trade costs are high. This magnification mechanism becomes useful in, the subsequent econometric analysis. Estimated additive trade costs are substantial. On average, additive costs are 33 percent, expressed relative to the median price. This leads us to reject the pure iceberg cost assumption. We assess the importance of these costs in shaping global trade flows. Our micro estimates of additive trade costs explain most of the geographical variation in aggregate trade. An implication of our work is that inferring trade costs from standard gravity models suffers from specification bias, since these models assume away the role of additive trade costs. The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs 2011-09-21T06:25:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=638 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201125.pdf Luca David Opromolla Luca David Opromolla 2011-09 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201122.pdf Bank of Portugal Working papers by António Rua Money growth and inflation in the euro area: a time-frequency view 2011-09-08T12:39:59Z This paper provides new insights on the relationship between money growth and inflation in the euro area over the last forty years. This highly relevant link for the European Central Bank monetary policy strategy is assessed using wavelet analysis. In particular, wavelet analysis allows to study simultaneously the relationship between money growth and inflation in the euro area at the frequency level and assess how it has changed over time. The findings indicate a stronger link between inflation and money growth at low frequencies over the whole sample period. At the typical business cycle frequency range the link is only present until the beginning of the 1980's. Moreover, there seems to be a recent deterioration of the leading properties of money growth with respect to inflation in the euro area. These results highlight the importance of a regular assessment of the role of money growth in tracking inflation developments in the euro area since such relationship varies across frequencies and over time. Money growth and inflation in the euro area: a time-frequency view 2011-09-08T12:39:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=635 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201122.pdf António Rua António Rua 2011-09 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201117.pdf Bank of Portugal Working papers by Ana Lacerda Banks' corporate control and relationship lending: evidence from retail loans 2011-08-01T12:39:00Z Universal banks can have control over borrowers by holding equity stakes in the borrower firm. Banks' corporate control is likely to increase the likelihood of providing a future loan as they mitigate information asymmetry and agency costs of debt. Using panel data on Portuguese companies, we find that a bank corporate control enhances the probability of providing a future loan by 10 percentage points relative to a relationship lender with no control. This finding is robust to the inclusion of many firm-level controls, including firm fixed effects, and to instrumental variable methods to correct for the potential endogeneity of banks' equity stakes in borrower firms. Consistent with our hypotheses, the effect is significantly higher for borrowers with greater information asymmetry, while the effect is lower when the borrower has multiple lending relationships or multiple banks as shareholders. Our results suggest banks' corporate control affect the choice of the lender in the corporate loan market. Banks' corporate control and relationship lending: evidence from retail loans 2011-08-01T12:39:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=618 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201117.pdf Ana Lacerda Ana Lacerda 2011-08 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201120.pdf Bank of Portugal Working papers by Ildeberta Abreu International organisations' vs. private analysts' forecasts: an evaluation 2011-07-13T12:39:59Z This paper evaluates the performance of the macroeconomic forecasts disclosed by three leading international organisations - the IMF, the European Commission and the OECD - and compares it with that of the mean forecasts of two surveys of private analysts - the Consensus Economics and The Economist. The publication of forecasts twice a year by international organisations always receives a great deal of public attention but the timely forecasts disclosed monthly by private institutions have been gaining increased visibility. The aim of this work is to help forecast users in answering the question of how much (little) confidence they should place in the alternative forecasts that are available at each moment. The evaluation covers real GDP growth and inflation projections for nine main advanced economies, over the period 1991-2009. Several evaluation criteria are used. The quantitative accuracy of forecasts is assessed and their unbiasedness and efficiency is tested. The directional accuracy of forecasts and the ability to predict economic recessions are also examined. The results suggest that the forecasting performance of the international organisations is broadly similar to that of the surveys of private analysts. By and large, current-year forecasts present desirable features and clearly outperform year-ahead forecasts for which evidence is more mixed both in terms of quantitative and qualitative accuracy. International organisations' vs. private analysts' forecasts: an evaluation 2011-07-13T12:39:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=626 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201120.pdf Ildeberta Abreu Ildeberta Abreu 2011-07 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201119.pdf Bank of Portugal Working papers by Ricardo M. Sousa Asset Returns Under Model Uncertainty: Evidence from the euro area, the U.K. and the U.S. 2011-07-04T17:36:00Z The goal of this paper is to analyze predictability of future asset returns in the context of modeluncertainty. Using data for the Euro Area, the US and the U.K., we show that one can improve the forecasts of stock returns using a Bayesian Model Averaging (BMA) approach, and there is a large amount of model uncertainty., The empirical evidence for the Euro Area suggests that several macroeconomic, financial and macro-financial variables are consistently among the most prominent determinants of risk premium.As for the US, only a few number of predictors play an important role. In the case UK, future stock returns are better forecasted by financial variables. These results are corroborated for both the M-open and the M-closed perspectives and in the context of "in-sample" and out-of-sample" forecasting. Finally, we highlight that the predictive ability of the BMA framework is stronger at longer periods, and clearly outperforms the constant expected returns and the autoregressive benchmark models. Asset Returns Under Model Uncertainty: Evidence from the euro area, the U.K. and the U.S. 2011-07-04T17:36:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=625 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201119.pdf Ricardo M. Sousa Ricardo M. Sousa 2011-07 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201118.pdf Bank of Portugal Working papers by Pedro Teles Money is an experience good: competition and trust in the private provision of money 2011-06-12T06:23:00Z We study the interplay between competition and trust as efficiency enhancing mechanisms in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on efficiency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved., The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good. Money is an experience good: competition and trust in the private provision of money 2011-06-12T06:23:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=619 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201118.pdf Pedro Teles Pedro Teles 2011-06 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201115.pdf Bank of Portugal Working papers by Caterina Mendicino On the amplification role of collateral constraints 2011-06-06T12:37:59Z How important are collateral constraints for the propagation and amplification of shocks? To address this question, we analyze a stochastic general equilibrium version of the model by Kiyotaki and Moore (JPE, 1997) in which all agents face concave production and utility functions and are generally identical, except for the subjective discount factor. We document that the existence of costly debt enforcement plays an important role in the endogenous amplification generated by the model. Limiting the amount of borrowing up to a reasonable fraction of the value of the collateral asset, makes the amplification generated by collateral constraints sizable and significantly larger than what we observe either in the representative agent version of the model, or in the version of the model where inefficiencies in the liquidation of the collateralized asset are neglected. On the amplification role of collateral constraints 2011-06-06T12:37:59Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=616 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201115.pdf Caterina Mendicino Caterina Mendicino 2011-06 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201116.pdf Bank of Portugal Working papers by Luis F. Martins Moment conditions model averaging with an application to a forward-looking monetary policy reaction function 2011-06-01T17:38:00Z In this paper, we examine the empirical validity of the baseline version of the forward-looking monetary policy reaction function proposed by Clarida, Gali, and Gertler (2000). For that purpose, we propose a moment conditions model averaging estimator in the Generalized Method of Moments and Generalized Empirical Likelihood setups. We derive some of their asymptotic properties under correctly specified and misspecified models. Although the model averaging estimates and the standard procedures point to a stabilizing policy rule during the Paul Volcker and Alan Greenspan tenures but not so during the pre-Volker period, our results cast serious doubts on the significance of the cyclical output variable as a forcing variable in the FED funds dynamics during the Volcker-Greenspan period. Moment conditions model averaging with an application to a forward-looking monetary policy reaction function 2011-06-01T17:38:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=617 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201116.pdf Luis F. Martins Luis F. Martins 2011-06 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201114.pdf Bank of Portugal Working papers by João Tovar Jalles Rational vs. Professional Forecasts 2011-05-06T17:40:00Z We compare theoretical and empirical forecasts computed by rational agents living in a model economy to those produced by professional forecasters. We focus on the variance of the prediction errors as a function of the forecast horizon and analyze the speed with which it converges to a constant (which can be seen as a measure of the speed of convergence of the economy to the steady state). We look at a standard sticky-prices-wages model, concluding that it delivers a strong theoretical forecastability of the variables under scrutiny, at odds with the data (professional forecasts). The flexible prices-wages version delivers a forecastability closer to the data and performs relatively better empirically (with actual data), but mainly because forecasts deviate little from the unconditional mean. These results can be interpreted in at least two ways: first, actual deviations from the steady-state are not persistent, in which case the implications of the specific formulation of nominal rigidities for short-run dynamics are unrealistic; second, and still looking through the lens of a model, exogenous (or unmodelled) steady-state shifts attributable to, e.g., changes in monetary-policy, taxation, regulation or in the growth of the technological frontier, occur in such a way as to strongly limit the performance of professional forecasters. Rational vs. Professional Forecasts 2011-05-06T17:40:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=615 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201114.pdf João Tovar Jalles João Tovar Jalles 2011-05 Bank of Portugal Working papers http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201113.pdf Bank of Portugal Working papers by M. Pisani Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment 2011-05-06T17:40:00Z We quantitatively assess the macroeconomic effects of country-specific supply-side reforms in the euro area by simulating a large scale multi-country dynamic general equilibrium model. We consider reforms in the labor and services markets of Germany (or, alternatively, Portugal) and the rest of the euro area. Our main results are as follows. First, there are benefits from implementing unilateral structural reforms. A reduction of markup by 15 percentage points in the German (Portuguese) labor and services market would induce an increase in the long-run German (Portuguese) output equal to 8.8 (7.8) percent. As reforms are implemented gradually over a period of five years, output would smoothly reach its new long-run level in seven years. Second, cross-country coordination of reforms would add extra benefits to each region in the euro area, by limiting the deterioration of relative prices and purchasing power that a country faces when implementing reforms unilaterally. This is true in particular for a small and open economy such as Portugal. Specifically, in the long run German output would increase by 9.2 percent, Portuguese output by 8.6 percent. Third, cross-country coordination would make the macroeconomic performance of the different regions belonging to the euro area more homogeneous, both in terms of price competitiveness and real activity. Overall, our results suggest that reforms implemented apart by each country in the euro area produce positive effects, cross-country coordination produces larger and more evenly distributed (positive) effects. Structural reforms and macroeconomic performance in the euro area countries: a model-based assessment 2011-05-06T17:40:00Z Abstract http://www.bportugal.pt/en-US/EstudosEconomicos/Publicacoes/Pages/BdPPublicationsResearchDetail.aspx?PublicationId=614 Full text http://www.bportugal.pt/en-US/BdP%20Publications%20Research/wp201113.pdf M. Pisani M. Pisani 2011-05 Bank of Portugal Working papers