Several specialists and authorities blame inflation targeting (IT) regime for not responding to the increasing systemic risk and the development of asset bubbles. Nevertheless, we employ a database with commercial banks from 71 countries between 1998 and 2012, and we present evidence that: banks...

We evaluate the Liquidity Preference Hypothesis (LPH) for the term structure of interest rates in a different way. Instead of using bond returns as traditional approaches, we use interest rate surveys with market expectations in order to evaluate LPH. This approach allows us to disentangle the...

This paper estimates reduced-form Phillips curves for Brazil with a framework of time series with unobserved components, in the spirit of Harvey (2011). However, we allow for expectations to play a key role using data from the Central Bank of Brazil’s Focus survey. Besides GDP, we also use...

This paper characterizes external sustainability in the presence of arbitrary gross international positions. The analysis is based on the response of net exports to net foreign liabilities, and is relevant for a growing literature using the same response function approach without any...

Behavioral models of the foreign exchange market explore the bias of economic agents towards forecasting rules with good recent performance. We propose an empirical framework to study such models without imposing restrictions on the set of forecasting rules or performance metrics. In particular,...

This paper proposes a novel orthogonality condition based on realized volatility that allows instrumental variable estimation of the effects of spot intervention in foreign exchange markets. We consider parametric and nonparametric instrumental variable estimation, and propose a test based on...

In the aftermath of the 2007-2008 global financial crisis, a series of measures has been proposed to regulate the OTC derivatives market. The motivation is to increase the disclosure of the OTC operations aiming to decrease the probability of crisis. The main objective of this paper is to...

This paper discusses the reasons and effects of the Central Bank of Brazil’s decision to raise the risk weight factors (RWF) of auto loans with high LTV and long maturities in 2010. Concerns with origination standards and risk-underpricing, combined with early warnings of loan non-performance...

The herd behavior in financial markets is particularly associated with periods of intense volatility and can be explained by the human component in asset trades. In this work, we use the methods of Christie and Huang (1995) and price pressure with high frequency data to detect the herd behavior...

We propose and test a model that combines of performance-based arbitrage, short-sale constraints and costly arbitrage. In the model, after an unexpected good earning surprise, short covering causes a price overshooting for highly shorted stocks. However, this price reaction is limited by...