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...

Business and financial cycles are important to Monetary and Macroprudential Policies. The Countercyclical Capital Buffer (CCB) proposed by the Basel Committee on Banking Supervision (BCBS) assumes that the financial cycle is four times longer than the business one with direct impacts over its...

We re-evaluate the proposed framework of the Basel Committee on Banking Supervision (BCBS) to look into the credit-to-GDP gap as a leading indicator related to the Countercyclical Capital Buffer (CCB) and propose an alternative approach focusing at credit-to-GDP growth. We follow earlier work...

In inflation targeting regimes, the transparent communication of monetary policy is an important instrument to reduce uncertainties and coordinate market expectations. This paper examines how the financial market reacts to the Central Bank of Brazil communication and shows that there is...

We develop a dynamic stochastic model of a middle-income, small open economy with a two-level banking intermediation structure, a risk-sensitive regulatory capital regime, and imperfect capital mobility. Firms borrow from a domestic bank and the bank borrows on world capital markets, in both...

This paper estimates optimal capital flow taxes for Latin American economies based on early warning models for sudden stops. The paper adopts the externality view advanced by Korinek (2010), according to which domestic agents do not internalize the costs of high debt in bad states of nature....