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Working Papers

The working papers of the Central Reserve Bank of Perú are preliminary research documents disseminated to motivate discussion and analysis. The conclusions and recommendations are those of the authors and do not indicate necessarily the point of view of the Central Reserve Bank of Perú or that of its board of Directors.

The working papers are published in their original language only, with abstracts in both Spanish and English. If you want to receive by e-mail the latest list of the working papers published, please contact the editors at This email address is being protected from spambots. You need JavaScript enabled to view it.

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2024

  • DT N° 005-2024: Informality and Wealth Distribution: A Heterogeneous Agent Model.
    • Author(s): Hamilton Galindo, Alan Ledesma, Luis Yepez, César Salinas
    • Language: English
    • Date: April 2024
    • Abstract: We postulate a continuous-time heterogeneous agent model that incorporates four key characteristics of informality: high informality size, interest rate premium, exemption from taxes, and greater risk aversion of informal agents. We use this framework to study the implications of informality for wealth and consumption distribution. Our results align with empirical research, showing that a substantial informal sector reduces overall median wealth and consumption levels while increasing their dispersion. We also identify differentiated contributions to this result from each of the four features of informality. Greater informality size and higher risk aversion among informal agents raise wealth dispersion, while a higher interest rate premium among informal agents lessens this statistic. Informal tax evasion, on the other hand, has only minor impacts on these results.
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  • DT N° 004-2024: Effects of the capital requirement concentration on the supply of loan credits.
    • Author(s): Walter Cuba
    • Language: Spanish
    • Date: April 2024
    • Abstract: This study analyzes the effects of the implementation of the capital requirement for market concentration on the credit supply of Peruvian financial institutions.
      This regulation was announced in July 2011 and became effective in July 2012, with an adaptation period that lasted until July 2016. The requirement consists of an additional effective equity buffer for financial institutions that have an asset level greater than 3 percent of GDP. In this way, the requirement was a simile to the regulation for domestic systemically important banks (D-SIBs) proposed in Basel III. In December 2022, a second version of the requirement came into force, with the objective of more closely resembling the standard proposed by Basel.
      The effect of the first version of the rule is evaluated, finding that it affected the supply of local and foreign currency loans, with a contraction of 8.5 percent and 4.4 percent, respectively, for each percentage point of additional effective equity requirement with respect to the minimum effective equity base, for the affected banks. In addition, it is found that the reduction came mainly from the riskier credit segments, which shows the effectiveness of the policy in incentivizing banks to reduce their risk exposure.
      This effect can be disaggregated between the effect of the required capital percentage and the adequacy percentage. In this way, the significance of changes in adequacy percentages can be evaluated. A significant and negative relationship is found between the supply of credit and the increase in the percentage of adequacy. This points to the importance of the design of the adequacy schedule to minimize unintended effects of the policy, for example, that there is a large negative effect in a period where credit conditions are negative.
      The latest modification of the standard is not evaluated, given the short time since its implementation.
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  • DT N° 003-2024: GDP nowcasting with Machine Learning and Unstructured Data.
    • Author(s): Juan Tenorio and Wilder Perez
    • Language: English
    • Date: April 2024
    • Abstract: In a context of ongoing change, “nowcasting” models based on Machine Learning (ML) algorithms deliver a noteworthy advantage for decision-making in both the public and private sectors due to their flexibility and ability to drive large amounts of data. This document introduces projection models designed for real-time forecasting of the monthly Peruvian GDP growth rate. These models integrate structured macroeconomic indicators with high-frequency unstructured sentiment variables. The analysis spans from January 2007 to May 2023, encompassing a comprehensive set of 91 leading economic indicators. Six ML algorithms were rigorously evaluated to identify the most effective predictors for each model. The findings underscore the remarkable capability of ML models to yield more precise and foresighted predictions compared to conventional time series models. Notably, Gradient Boosting Machine, LASSO, and Elastic Net emerged as standout performers, demonstrating a prediction error reduction of 20% to 25% when contrasted with AR and various specifications of DFM. These results could be influenced by the analysis period, which includes crisis events featuring high uncertainty, where ML models with unstructured data improve significance.
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  • DT N° 002-2024: The effect of anticipated and unanticipated fiscal shocks in Peru.
    • Author(s): José Aguilar and Erick Lahura
    • Language: Spanish
    • Date: March 2024
    • Abstract: The aim of this research is to estimate the effect of public spending on economic activity, taking into account that changes in public spending could be anticipated by economic agents. The public spending shock is identified recursively from a vector autoregressive model (VAR) that includes a variable capturing the anticipated component of public spending. To measure this anticipated component, projections of public spending published in the Inflation Reports of the Central Reserve Bank of Peru since 2002 are used. The results show that an unanticipated public spending shock positively affects real GDP and real consumption. This effect is overestimated when the variable capturing the anticipated component of public spending is not included. Furthermore, shocks to public spending projections, which can be understood as news shocks, also positively impact consumption and output. Finally, it is shown that these results are robust to including nonlinear effects through the estimation of VAR models with changing parameters and stochastic volatility (TVP-VAR-SV).
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  • DT N° 001-2024: Economic shocks and consumption-smoothing strategies of households.
    • Author(s): Nikita Céspedes Reynaga and Manuel Talledo
    • Language: Spanish
    • Date: March 2024
    • Abstract: We examine how Peruvian households adjust their consumption in response to economic shocks, employing the weak version of the permanent income hypothesis. We analyze two types of household strategies: those adopted in anticipation of a shock (ex-ante), such as insurance and access to formal credit markets, and those employed after the shock occurs (ex-post). Our findings reveal several key points: i) Peruvian households, on average, manage to smooth their consumption in the face of economic shocks. ii) Consumption smoothing is primarily observed among households with access to formal financial markets, though during the pandemic, households with savings outside the formal system also demonstrated this ability. iii) Households prioritize smoothing consumption in essential categories (food and health) over non-essential ones. iv) We identify eight ex-post strategies that households use to mitigate the impact of shocks. On average, these strategies contribute to consumption smoothing, with multiple jobholding and government transfers being particularly effective. Moreover, our study underscores the variation in consumption-smoothing capabilities among households. High-income households tend to leverage financial instruments more effectively, whereas low-income households have limited access to such instruments, resulting in less effective consumption smoothing.
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2023

  • DT N° 015-2023: Digital Money and Central Banks Balance Sheet.
    • Author(s): Adrián Armas and Manmohan Singh
    • Language: Spanish
    • Date: December 2023
    • Abstract: Digital money is a logical step in a process of continuous technological advancement in payment systems. In response, central banks are reviewing their conduct of monetary operations in light of the new shape of financial markets and systems. The impact of digital money will depend on the type of money substitution by digital money. The paper straddles several cases where substitution of CiC (currency in circulation), and bank deposits may take place via digital money such as CBDC or other e-money, and how it would impact the central bank balance sheet. Remuneration of CBDC, if aligned to anew objective, could potentially amplify the effect on the interest rate channel of monetary policy.
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  • DT N° 014-2023: Estimation and assessment of measures of the natural rate of interest: Evidence from Latin American economies with inflation targeting.
    • Author(s): Erick Lahura and Marco Vega
    • Language: English
    • Date: December 2023
    • Abstract: We estimate and assess two measures of the natural rate of interest (NRI) for two Latin American economies, Chile and Peru, where monetary policy is conducted under inflation targeting. The first NRI measure is obtained through the estimation of a time varying parameter vector autoregression model with stochastic volatility (TVP-VAR-SV) as in Lubik y Matthes (2015), which we denote TVP-NRI. The second NRI measure is based on a recent methodology proposed by Benati (2020) and Benati (2023), which exploits the relationship between the interest rate and money velocity (Benati-NRI). In order to assess these two measures of NRI, we propose a new and simple criterion based on the idea that NRI is not expected to react to shocks that have no long-run effect on real interest rate (i.e. transitory shocks). The results for Chile and Peru indicate that TVP-NRI measures are relatively superior.
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  • DT N° 013-2023: What makes the poor stay poor? Poverty dynamics in Peru.
    • Author(s): Mario Huarancca, Luis Eduardo Castillo and Renzo Castellares
    • Language: English
    • Date: December 2023
    • Abstract: This paper investigates the dynamics of monetary poverty in Peru between 2015 and 2022, with a particular focus on the impact of the COVID-19 pandemic. Using panel data from the National Household Survey (ENAHO), we examine three key questions: the extent of poverty persistence, household characteristics associated with an increase in the probability of being poor, and changes in poverty dynamics following the pandemic. Our analysis employs transition matrices and probit regression techniques, offering a comprehensive exploration of these dynamics.
      Our main findings highlight the enduring nature of poverty in Peru, with over half of impoverished households remaining in poverty the subsequent year. The pandemic-induced economic shocks led to a transient surge in poverty persistence to 60% between 2019 and 2020. Additionally, five-year intervals show increased poverty persistence in the 2018-2022 period, suggesting heightened economic vulnerability after the pandemic.
      We find that demographic, social, and economic factors correlate with poverty persistence. Households led by females or older individuals exhibit lower persistence, while the presence of children, lack of access to health insurance, and informality are linked to higher poverty persistence. Probit regression analysis confirm the protective effect of education, and how the influence of natural hazard events, the demographic dependence in the household, and precarious jobs increases the probability of being poor.
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  • DT N° 012-2023: The impact of macroprudential policies on industrial growth.
    • Author(s): Carlos Madeira
    • Language: English
    • Date: December 2023
    • Abstract: This paper analyzes the causal impact of macroprudential policies on growth, using industry-level data for 93 countries to overcome reverse-causality issues. Data on individual industries is required for identification, because national regulators care about the total GDP but not about the product of small economic sectors. I find that macroprudential tightening have a negative impact on manufacturing growth, especially in the long-term and for industries with high external finance dependence. This impact is stronger in periods of higher growth and for advanced economies. Supply of capital prudential policies have a larger impact on manufacturing growth.
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  • DT N° 011-2023: Re-election of Peruvian subnational authorities: an analysis of its influence on district welfare indicators during the 2011-2014 municipal period.
    • Author(s): Diego Camacho and Jhonatan Vicuña
    • Language: Spanish
    • Date: December 2023
    • Abstract: Up until 2014, electoral laws in force in Peru allowed the indefinite reelection of sub-national authorities. However, a law forbidding immediate reelection of regional and local authorities was enacted in 2015. Within this context, this work aims to evaluate the effect of reelection on the performance of local authorities in Peru. We follow the competence approach and propose the hypothesis that reelection would positively impact the performance of local authorities: greater experience in office would make incumbent mayors more competent for the work. The competence approach is present in the political economy literature but has not been thoroughly studied empirically.
      We use a regression discontinuity approach to test the hypothesis, exploiting election results among re-elected and novice mayors with narrow voting margins. We measure the performance of local authorities in the main investment items of district mayors: education (through educational performance), health (through prevalence of acute diarrheal diseases), and infrastructure (through an index for economic activity).
      The main results suggest that there are no significant differences in the performance between districts with re-elected mayors and districts with novice mayors. These findings are not homogeneous in the case of educational variables, as there are positive but temporary effects in certain cases.
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  • DT N° 010-2023: External Shocks in the Peruvian Economy: A Zero-and-Sign Approach in a BVAR Model.
    • Author(s): Gustavo Ganiko and Alvaro Jiménez
    • Language: Spanish
    • Date: December 2023
    • Abstract: This paper quantifies the impact of various external shocks on the Peruvian economy, which are characterized as: i) demand, ii) supply, iii) financial, and iv) export price shocks. Using data between 1995 and 2019, we estimate Bayesian VAR models with block exogeneity, which are identified through sign and zero restrictions. Results suggest that the Peruvian economy is highly exposed to external shocks, which explain around 60% of the domestic variables variance. According to forecast error variance decompositions, historical decompositions and impulse-response functions, external demand shocks are the most important drivers of GDP, consumer prices, and exchange rate dynamics. External supply shocks have a greater effect on local inflation, while external financial shocks have a more relevant and persistent effect on the domestic interest rate. Finally, export price shocks have significant effects on exchange rate dynamics.
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  • DT N° 009-2023: FX intervention and domestic credit in a partially dollarized economy: Evidence using microdata from Peru.
    • Author(s): Marcos Ceron, Rafael Nivin and Diego Yamunaque
    • Language: English
    • Date: November 2023
    • Abstract: In this work we study the impact of FX interventions on Credit growth in Peru. Using Panel data at the firm-bank level from the Peruvian Credit Registry we find that purchases of dollars by the Central Bank are associated with reductions on the stock of credit held by Medium, Big and Corporate Firms during periods of substantial capital inflows in the Peruvian economy. We also found that the impact is stronger for firms with a higher level of debt dollarization. These results suggest that FX interventions can be seen as an additional tool for Financial stability, especially in times of large inflows of capital.
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  • DT N° 008-2023: Financing Imbalances and Heterogeneous Effects of Monetary Policy.
    • Author(s): Jorge Pozo and Youel Rojas
    • Language: English
    • Date: November 2023
    • Abstract: This work documents the existence of a heterogeneous banking channel in Peru, where monetary policy actions have a differentiated effect on the credit market, and which depends on the level of leverage of financial institutions. First, we demonstrate that the heterogeneity of the banking channel may not be attributed to asymmetric monetary policy shocks. Using aggregate data, we find a symmetric aggregate response of the credit market to expansive or contractive monetary policy shocks. Second, we characterize the heterogeneity of the banking channel based on the financing structure of financial institutions. Using financial entity level data, we demonstrate that the external financing component of the debt structure, measured by the level of leverage, primarily determines a heterogeneous monetary policy lending channel. Meanwhile, the internal banking network for mobilizing deposits and credit plays a less significant role. To show causal effects of this financing imbalance channel, we use microdata at the branch level, together with an econometric strategy that focuses on local credit markets and a measure that considers the geographic distribution of financing imbalances. We show that the dependence on external funding at the branch level determines the heterogeneity in the credit channel, for the monetary policy transmission, with two important margins: an amplifying effect and another attenuating effect, associated with a lower or higher level of leverage, or with a greater or lesser need for external funding, respectively. To provide a theoretical underpinning for our empirical findings, we develop a formal model. In this model, we demonstrate that the financing structure of a bank generates effects that amplify or attenuate the influence of monetary policy.
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  • DT N° 007-2023: Financial inclusion transitions in Peru: The role of labor informality.
    • Author(s): Jose Aurazo y Farid Gasmi
    • Language: English
    • Date: October 2023
    • Abstract: Developing countries, typically characterized by a high degree of labor informality (LI), have broadly adopted financial inclusion (FI) as a policy goal. Using 2015-2018 survey data from Peru, we examine how LI affects FI (measured as the access to bank accounts/payment cards) from a dynamic perspective by investigating the relationship between LI and FI transitions. First, we find that LI reduces the probability of entering formal financial system by 8 percentage points (pp) and increases that of exiting it by 9.3 pp. As to transitions in the labor market, we find that relative to workers who get stuck with informal jobs, those who have and stay with formal jobs have a higher probability of gaining access to a bank account/payment card by 9 pp and a lower probability of losing access to these financial products by 12 pp. Workers who move into formal jobs are more likely to enter the formal financial system by 9.7 pp and less likely to exit from it by 7.1 pp. These results on the relationship between transitions in the labor and financial markets should help design policies for promoting financial inclusion.
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  • DT N° 006-2023: The Impact of the Agrarian Promotion Law on the Income of Formal Workers.
    • Author(s): Omar Ghurra y Renzo Castellares
    • Language: English
    • Date: October 2023
    • Abstract: This research assesses the impact of the Agrarian Promotion Law (APL) on formal workers’ income in sectors affected by the aforementioned law. To explore this impact, we use detailed information from the National Household Survey (ENAHO) and estimate the effect by applying a difference-in-difference (DD) estimator. We find in our baseline results that the APL had a positive impact of 52% on the average income of formal workers in the long run (2001-2015). Finally, we estimate a DD model with propensity score matching (PSM) and then a DD model with instrumental variables (DDIV) to avoid potential endogeneity problems. We find that the effect of the APL is larger in terms of magnitude (115% in the long run), which could be explained by a possible tendency of some workers to misreport their labor formality status (social desirability bias) on household surveys.
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  • DT N° 005-2023: The Impact of REACTIVA on the Real Economy and on Bank Risk-Taking.
    • Author(s): Balila Acurio, Renzo Pardo, José Luis Peydró y Jorge Pozo
    • Language: English
    • Date: October 2023
    • Abstract: We analyze empirically the impact on the credit market, including bank risk-taking, as well as the associated real effects of REACTIVA Peru, a Peruvian public credit guaranteed program oriented to avoid a severe reduction in the economic activity and the credit market. We use matched administrative datasets: the exhaustive credit register and firm-level monthly employment data. Our results suggest that REACTIVA reduces bank risk (defaults) of the total credit portfolio, as well as it has a positive impact on the real economy – firm employment–, both at the intensive and extensive margins. In addition, our results suggest that in normal times there could be a trade-off between bank risk-taking and economic activity: REACTIVA avoids a stronger contraction of the real economy, due to a positive impact on employment, and increases bank willingness to take risk, captured by an increase of the risk of the non-REACTIVA credit portfolio. However, during the Covid-19 shock, this finding is associated with the desired impact of REACTIVA in diminishing any excessive increment of bank risk aversion.
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  • DT N° 004-2023: “Text analysis and readability of monetary policy press releases: The case of Peru, 2001-2021”.
    • Author(s): Erick Lahura, Luz Pumacahua y Rebeca Sosa
    • Language: Spanish
    • Date: August 2023
    • Abstract: The goal of this paper is to analyse the readability of monetary policy communication in Peru and explore its determinants. Specifically, we study the Nota Informativa, a monthly press release in which monetary policy decisions are officially communicated by the Central Reserve Bank of Peru (BCRP). The readability analysis is carried out through the application of text analysis techniques to 252 press releases published between February 2001 and December 2021. The readability of the press releases is measured by the Szigriszt Reading Ease (SRE) readability index, adjusted for Spanish language by Szigriszt (1993). Then, we estimate dynamic models to explore some potential determinants of the press releases’ readability. We find that the readability of the press releases has remained stable at around a normal level. In addition, regression results indicate that the readability is persistent, i.e. communication has not suffered drastic changes over time, and that it is relatively higher during the first semester of each year. In addition, as is to be expected during difficult times for any central bank, it is found that the Covid-19 pandemic and the acceleration of either inflation expectations or the reference interest rate are associated to a reduction in the readability of the press releases; however, the magnitude of these effects has been small and has not deviated the level of readability from the normal range.
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  • DT N° 003-2023: “The Impact of Special Labor and Tax Regimes on the Extensive and Intensive Margins of Small Agricultural Exporters”.
    • Author(s): Renzo Castellares and Gustavo Martinez
    • Language: English
    • Date: February 2023
    • Abstract: This research assesses the impact of Peru’s Agrarian Promotion Law (APL)—which reduced tax and labor costs by half since 2001—on (i) non-traditional agricultural exports (NTAXs) by micro, small, and medium-sized enterprises (MSMEs); and on (ii) these firms’ capability of penetrating new foreign markets. To theoretically explore this impact, we devised a heterogeneous firm framework based on Melitz (2003), but also incorporated financial and labor frictions used by Manova (2013) and Helpman & Itskhoki (2007). We then conducted an empirical test by using detailed customs data at the firm level for 1994–2019. We find that the APL explained 40% and 59% of the MSMEs’ NTAXs and trade links, respectively, from between 2001 and 2019. Hence, the APL may have involved approximately 100,000 additional jobs on average per year—i.e., 64% of the jobs reported by APL firms. These findings strongly suggest that law’s repeal, which took place very recently, may bring these positive effects on exports and employment to an end. They may also serve as a benchmark for the yet-to-be-explored benefits of special labor and tax regimes in emerging economies.
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  • DT N° 002-2023: “Interest Rate Caps in an Economy with Formal and Informal Credit Markets”.
    • Author(s): Jorge Pozo
    • Language: English
    • Date: February 2023
    • Abstract: In this work, we aim to study the implications of the interest rate cap in an emerging economy. To do so we develop a two-period banking model with entrepreneurs that undertake risky projects and with formal and informal lenders. Entrepreneurs are heterogeneous in their level of net worth. We find that a cap on the lending interest rate excludes entrepreneurs with a low level of net worth, which in turn increases the participation of the informal credit market, but also might reduce bank markups increasing entrepreneurs' welfare. Our findings imply that the lower the market power of banks, the smaller the likelihood that the cap might have some positive impact on aggregate credit and investment. Furthermore, we suggest that the lower the financial inclusion and the higher the asymmetric information problem, the higher the likelihood of caps harming the economy, due to caps preventing clients to create a good credit history and improve their credit conditions.
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  • DT N° 001-2023: Loan Guarantees and Bank Incentives: Evidence from Covid-19 Relief Funds in Peru.
    • Author(s): Carlos Burga, Walter Cuba, Eduardo Díaz y Elmer Sánchez
    • Language: English
    • Date: January 2023
    • Abstract: We estimate the effects of loan guarantees on delinquency rates during economic downturns and explore how the allocation of such guarantees shapes its aggregate effect. We do so by studying a large program of loan guarantees implemented by the Central Reserve Bank of Peru and the Peruvian government, aimed at providing liquidity to the financial system in order to prevent disruptions in the supply chain. We find that the program expanded credit supply and reduced delinquency rates. A 10 percent increase in credit is associated with a 1.4 percentage points decline in the probability of experiencing repayment delays for the average firm. This elasticity is significantly bigger among small firms operating in highly exposed industries. However, these firms obtain less credit when participating in the program, due to their reduced operating scale and borrowing capacity (relative to bigger firms) and financial institutions’ own credit assessment. Our results suggest that targeting more sensitive firms matter for the aggregate impact of the program. Thus, by implementing auctions for different segments of the credit market, which increased competition among financial institutions, the Central Bank improved the effectiveness of the program in terms of delinquency rates and financial stability.
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2022

  • DT N° 013-2022: Peru: History of Monetary and Exchange Rate Policies (1821-2021) - An Interpretation.
    • Author(s): Gonzalo Pastor
    • Language: Spanish
    • Date: December 2022
    • Abstract: This chapter examines the implementation of monetary and exchange rate policy in Peru during the 200 years since the founding of the republic (1821-2021). The historical review briefly describes the policy achievements and constraints on national monetary management (before and after the establishment of the central bank in 1922) imposed by world economic and financial developments.
      Central to the historical analysis is the choice of the exchange system (fixed or floating exchange rate) that affected the autonomy of the central bank in the implementation of macroeconomic stabilization policies. Under a fixed exchange rate, the monetary authority lacked autonomy to affect the national internal balance (growth and balance of payments), with its main function reduced, in principle, to guaranteeing the supply of foreign currency at the official parity. Only under a floating exchange rate system there was an effective functioning of autonomous monetary policy operating in a context of financial openness with the rest of the world. The institutional changes enshrined in the Organic Law of the Central Reserve Bank of Peru (BCRP) of 1992 and the Constitution of 1993--eliminating the possibility of monetary financing of the fiscal deficit--consolidated the independence of the monetary authority and put an end to the process of "fiscal dominance" of monetary management characteristic of most of the 20th century.
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  • DT N° 012-2022: Lending Rate Caps and Credit Reallocation.
    • Author(s): Carlos Burga, Rafael Nivin and Diego Yamunaqué
    • Language: English
    • Date: December 2022
    • Abstract: We estimate the effects of lending rate caps by studying a regulation that prohibited interest rates above 83.4% in Peru, affecting 27% of loans to small firms. We find that this policy generated substantial credit reallocation with implications for financial stability. At the loan-level, banks reduce small-size loans and expand medium-size credit, favoring incumbent firms at the expense of new borrowers. At the city level, we define treatment as the percent decline in interest payments necessary to bring interest rates down to the lending rate cap in the pre-reform period. Using a difference-in-differences approach, we estimate that one standard deviation higher treatment leads to a 5 percentage points decline in interest rates with null effects on credit because banks reallocate loans away from risky borrowers towards safer clients in highly concentrated bank credit markets. The decline in interest payments and the reallocation of credit cause a reduction in the share of non-performing loans, suggesting a minor role for risk-taking incentives associated with the deterioration of banks charter value when interest rates are regulated.
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  • DT N° 011-2022: Quarterly Projection Model: 2019 Update.
    • Author(s): John Aguirre, Johar Arrieta, Luis E. Castillo, David Florián, Alan Ledesma, Jefferson Martínez, Valeria Morales y Amílcar Vélez.
    • Language: Spanish
    • Date: July 2022
    • Abstract: This paper presents a new version of the Quarterly Projection Model that has been used for macroeconomic forecasting and monetary policy and risk scenario analysis by the Economic Studies Department at the Central Reserve Bank of Peru between 2014 and 2019. We show the main modifications to the model’s structure since its last published version (2014), as well as the estimation results using data from 2002 to 2017. Then, we proceed to discuss the consequences of these changes in terms of the model’s dynamics and its forecast performance. The non-observable variables resulting from the estimation process, including the output gap and the potential output growth, are also displayed. Finally, we recount the recent history of the main macroeconomic aggregates from the model’s perspective using a historical decomposition technique.
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  • DT N° 010-2022: Relationship lending in Peru
    • Author(s): Alessandro Tomarchio.
    • Language: English
    • Date: July 2022
    • Abstract: This paper studies whether the strength of bank-firm relationships has an impact on credit conditions, particularly during a stress scenario such as COVID-19 crisis. Using the Peruvian credit registry, we find that firms get better credit conditions (higher credit line and loan size growth, lower interest rate growth) in the institution where they have a stronger bond, measured by years of relationship, geographical proximity to a branch and share of credit. Furthermore, those effects are stronger compared to a pre-COVID scenario and heterogeneous depending on firm characteristics. We also find a positive effect of our relationship lending indices on the probability of getting Reactiva loans and loan rescheduling, and on the growth rate of the number of employees.
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  • DT N° 009-2022: Uncertainty Shocks and Financial Regimes in Emerging Markets.
    • Author(s): Luis Gonzalo Llosa, Fernando J. Pérez Forero y Vicente Tuesta.
    • Language: English
    • Date: July 2022
    • Abstract: We study the link between financial conditions and economic uncertainty in five emerging markets (Brazil, Chile, Colombia, Mexico, and Peru). In the empirical model, uncertainty is measured as the volatility of the economy's structural shocks and its macroeconomic effect is contingent on the state of financial markets (normal or distress). We find that sudden jumps in uncertainty tighten financial conditions, increasing the likelihood of financial distress. We also find that uncertainty shocks are recessionary at all periods, induce lower interest rates and weaken domestic currencies against the US dollar. Importantly, these responses are larger and more persistent during periods of financial distress.
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  • DT N° 008-2022: Evaluating Growth-at-Risk as a tool for monitoring macro-financial risks in the Peruvian economy.
    • Author(s): Diego Chicana y Rafael Nivin.
    • Language: English
    • Date: October 2022
    • Abstract: This paper evaluates the Growth-at-Risk methodology developed by Adrian et al. (2019) for the Peruvian economy. To do so, we first evaluate the accuracy of several techniques to estimate the density of output growth forecasts, conditional on a set of variables that characterize the current macro-financial conditions in Peru. Then, we use the model under the best conditional density estimator to evaluate the impact of the government credit-oriented program Reactiva Peru on the local macroeconomic and financial stability. Our results show that Reactiva Peru had a sizable impact in macroeconomic and financial stability, since it avoided a much deeper decrease in economy activity during the Covid-19 crisis.
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  • DT N° 2022-007: Inflation dynamics as a response to commodity prices, inflation expectations and exchange rate depreciation.
    • Author(s): Gerson Cornejo, David Florian y Alan Ledesma
    • Language: Spanish
    • Date: June 2022
    • Abstract: Recent domestic and global shocks, especially the extraordinary increase in international food and energy prices, as well as the persistent depreciation of the local currency, explain the unusual surge in inflation during post COVID-19 recovery. This study seeks to quantify these factors’ contribution to multiple inflation metrics using a Bayesian approach that is robust to the features of a small open economy such as Peru. Structural shocks are identified using a scheme of contemporaneous zero-sign constraints. The results confirm the significant contribution of food and energy price increases together with exchange rate depreciation to the recent inflationary episode. This may be associated with the impact of these prices on domestic production costs by increasing the cost of different imported inputs. Finally, a counterfactual exercise shows that, had pre-COVID-19 commodity price forecasts materialized, domestic inflation metrics would not have exceeded the inflation target range.
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  • DT N° 2022-006: Peru: Poverty under two lenses.
    • Author(s): Luis Eduardo Castillo y Mario Huarancca
    • Language: Spanish
    • Date: May 2022
    • Abstract: How has poverty evolved in Peru in recent years? We employ a multidimensional poverty index, the IPM-P, to analyze and compare the path of poverty in Peru between 2007 and 2020 under different approaches. We intend to show the benefits of using a multidimensional index as a complement to Peru’s official monetary poverty index, mainly to enhance the identification of vulnerable households and the design of public policies. The index’s making follows Alkire & Foster (2011), and includes six dimensions: health, education, basic services, physical environment, social participation, and economic participation. We find that the incidence of multidimensional poverty may have been greater that the incidence of monetary poverty throughout the years. However, the rise in multidimensional poverty between 2019 and 2020 (2,0 pp.) was sharply smaller than the one experienced in terms of monetary poverty (9,9 pp.). On the other hand, around half of the monetary-poor households were not deprived enough to be considered multidimensionally poor in 2020. Furthermore, the poverty profile changes significantly across geographic areas. Specifically, Lima Metropolitana (i.e., the capital city) gathered around a third of the monetary-poor households in 2020, but just 10,7% of the multidimensionally poor ones. The share of the jungle and rural areas in the aggregate poverty levels also increases when switching from the monetary to the multidimensional approach. Finally, we find a stronger correlation between Peruvian households’ self-assessment of their poverty stance and the IPM-P than with the monetary index.
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  • DT N° 2022-005: Evaluating core inflation measures for Peru: 2002-2021.
    • Author(s): Erick Lahura and Alexander Grande
    • Language: Spanish
    • Date: May 2022
    • Abstract: We evaluate the usefulness of core inflation measures published by the Central Reserve Bank of Peru (BCRP). The main criterion for this evaluation is that a core inflation measure should be an attractor for headline inflation, that is, it must represent the trend towards which headline inflation converges. Given the nonstationary behavior of headline inflation, the criterion requires three econometric conditions to be satisfied: (a) Headline inflation and the core inflation measure cointegrate with a unit cointegration vector [1, -1], (b) the core inflation measure is weakly exogenous, and (c) the core inflation measure is strongly exogenous. Four core inflation indicators are evaluated: (i) exclusion-based core inflation (CORE), (ii) inflation excluding food and beverages (SAB), (iii) inflation excluding food and energy (SAE), and (iv) core inflation excluding food and beverages (CORESAB). We use monthly information for the period January 2002 - December 2021. The results for the pre-Covid sample (January 2002-February 2020) show that CORE, SAB, and CORESAB are good core inflation measures. These results remain similar if the post-Covid period (March 2020 - December 2021) is included.
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  • DT N° 2022-004: The Impact of Minimum Wage on Prices and Households’ Purchasing Power.
    • Author(s): Renzo Castellares, Omar Ghurra y Hiroshi Toma.
    • Language: Spanish
    • Date: April 2022
    • Abstract: The economic literature that studies the impact of minimum wage increases on prices typically focuses on specific industries or jobs, using only partial information. In this document, we estimate the minimum wage pass-through effect on the price level using disaggregated information from the Peruvian CPI and considering the heterogeneous industries' exposure to changes in the minimum wage. We construct the following industry-specific exposure indicators to the minimum wage based on household and enterprise surveys, as well as the input-output table: (i) workers that earn the minimum wage as a percentage of the total workers in that industry; (ii) the sum of labor costs of workers who earn the minimum wage as a percentage of the total costs; and (iii) an indicator that also captures the indirect effects of minimum wages increases through input expenditures. Our findings suggest that the minimum wage pass-through increases along with our exposure indicators. The estimated pass-through is higher in industries with a larger domestic content share and lower price-rigidity goods. Thus, a 10 percent increase in the minimum wage is associated with a 0.73 pp. increase in the CPI one year from now. Finally, after considering the income distribution by income quintiles of workers who earn the minimum wage, we find that a minimum wage rise is associated with a reduction in the real income of the poorer households.
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  • DT N° 2022-003: Analysis of the Weak Version of the Efficient Market Hypothesis in Peru.
    • Author(s): Freddy S. Espino Lazo.
    • Language: Spanish
    • Date: May 2022
    • Abstract: This paper analyzes the Weak Version of the Efficient Market Hypothesis (EMH) for Peru during the period 2006-2021. The EMH is based on the work of Fama (1970), who indicates that a market is efficient if the prices of financial assets "fully reflect" all available information. In addition, Malkiel (2003) says that a market is efficient if it does not allow investors to obtain higher-than-average returns without assuming higher risks than the average investor. In its Weak Version, the EMH points out that the prices of financial assets reflect all past price information, as well as all information related to their transaction over time, such as transaction volume, interest rates, etc. In statistical terms, the Weak Version of the EMH leads to the concept of the stochastic process called random walk, which, by definition, cannot be predicted. In this way, the empirical test carried out in the present work consists of investigating whether the General Index of the Lima Stock Exchange (IGBVL) has a trajectory like that of a random walk process. This pattern is not reproduced in the case of data with daily frequency, weekly and monthly, and it does in the case of quarterly data. Therefore, it is concluded that the Weak Version of the EMH is not fulfilled in the Peruvian case.
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  • DT N° 2022-002: Financial Stress and macroeconomic fluctuations in Peru.
    • Author(s): Marthín Morán, Rafael Nivin y Derry Quintana.
    • Language: English
    • Date: December 2021
    • Abstract: The degree of financial stress can have implications for the dynamic of macroeconomic variables. This paper develops a financial stress index (FSI) for the Peruvian economy, using Principal Component Analysis (PCA) over a broad set of financial variables covering the banking sector, capital markets, money and foreign exchange markets. After estimating the FSI, to assess the impact from financial stress to the real sector variables, an impulse response analysis is performed through Local Projection developed by Jordà (2005), in its nonlinear extension by Gorodnichenko and Auerbach (2013) since financial stress impact on macroeconomic dynamics is non-linear. Results show that during periods of stable financial markets, macroeconomics dynamics are consistent with the Newkeynesian framework where monetary policy has a stabilizing role after a demand shock hits the economy. However, during financial stress episodes, the effectiveness of monetary policy is reduced, given the same shock.
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  • DT N° 2022-001: Exchange Rate Volatility in LATAM: Common and Idiosyncratic Factors.
    • Author(s): Fernando Pérez Forero.
    • Language: English
    • Date: May 2022
    • Abstract: This paper examines the volatility of the daily returns of the main Latin American currencies against the dollar (Brazil, Chile, Colombia, Mexico and Peru) over the last twenty years. Based on a simple Bayesian Stochastic Volatility framework, it is possible to identify the global synchronization factor of these currencies and distinguish it from the idiosyncratic component of each country. The global factor captured is highly correlated with popular volatility indicators, such as the VIX or the EPU of the US. We also find that the proportion of volatility explained by the global factor is significantly higher than that of the idiosyncratic component. Likewise, idiosyncratic volatility is much lower in the case of Peru compared to its peers in the region, with Brazil being the country with the most volatile component. Naturally, the characteristics of each market, credibility and confidence in the national currency, plus political uncertainty, and the exchange rate intervention of the central bank, play an important role in determining such volatilities.
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2021

  • DT N° 2021-010: Tax policy, income distribution, and gender differences in Peru.
    • Author(s): Erick Lahura and Cristian Segovia.
    • Language: Spanish
    • Date: December 2021
    • Abstract: This paper examines the distributional effect of a tax change implemented in Peru in 2015, which affected earned and foreign income. For this purpose, we analyse the before and after-tax distribution of income declared by taxpayers to the tax authority in 2014 and 2015, both at an aggregate level and by gender. We employ three indicators of inequality (Gini, Generalized Entropy and Atkinson), two wellbeing indicators (Atkinson and Sen), and one measure of interdistributional inequality (interdistributional Lorenz curves). The results show that personal income tax in Peru is progressive and reduces inequality; however, income distribution became more unequal after the tax change implemented in 2015, both at an aggregate level and by gender. In terms of gender, it is found that women were relatively better than men both after paying taxes and after the tax change implemented in 2015, which reflects a positive gender-progressive effect of income tax. Finally, the improvement in the relative position of women after paying taxes is only reflected in the highest income deciles, whereas the improvement related to the tax change is observed along the entire income distribution, with the exception of one decile.
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  • DT N° 2021-009: Economic effects of climate change in Peru.
    • Author(s): Raymundo G. Chirinos.
    • Language: Spanish
    • Date: December 2021
    • Abstract: This document assesses the economic effects of global warming in Peru by using regional data on output and climate. We use series of national accounts of the INEI available from 1970 to 2019 and series of maximum and minimum temperatures and rainfall published by the National Meteorological Office, which has information from the 1960s for most of regions. We find out that despite the high uncertainty in the models, if the current deviations in temperatures compared to the levels that prevailed between the years 1960 and 1990, maintain a similar trend, this would reduce income per inhabitant by 9 percent as of 2050 (within a range from 9 to 21 percent) and 22 percent as of 2100 (as part of a range from 8 to 46 percent). It should be noted that this wide range of forecasts is due to the inherent uncertainty in these models of climate-based effects.
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  • DT N° 2021-008: Trend-Cycle Decomposition of GDP: A Flexible Filter.
    • Author(s): Fernando Pérez Forero.
    • Language: English
    • Date: December 2021
    • Abstract: The measurement of the Trend or long-term GDP is of vital importance for the characterization of macroeconomic scenarios. However, the usual filters are in some cases unstable when adding new data points and quite rigid in terms of their specification, which makes it difficult to calculate. This is especially relevant in contexts of greater uncertainty, where different shocks of varying magnitude can affect the aggregate economy. These filters are quite popular, although they could be unstable in very long series and with potential structural breaks. In this work a so-called 'flexible filter' is proposed, which is of the Cycle-Trend type, but which considers shocks with varying variances over time (Stochastic Volatility). The aforementioned filter is applied to quarterly data from the United States, Canada and Peru. In general, the consideration of a stochastic volatility component is a safe strategy against structural changes. Finally, the methodology also makes it possible to quantify the uncertainty associated with these estimates.
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  • DT N° 2021-007: Bank Competition and Risk-Taking.
    • Author(s): Jorge Pozo and Youel Rojas.
    • Language: English
    • Date: December 2021
    • Abstract: This paper studies empirically the relationship between competition in the loan market and risk-taking in the Peruvian financial system. Our finding challenges the theoretical work of Martinez-Miera and Repullo (2010) that finds a U-shaped relationship between competition and risk-taking, as well as the empirical work of Jiménez et al. (2013) that finds evidence that supports this nonlinear relationship in a developed economy as Spain. In contrast, we find empirical evidence of an inverted U-shaped relationship between competition and risk-taking in Peru, an emerging economy. We develop a theoretical model to rationalize our empirical findings. One possible explanation for our findings is the greater presence of borrowing constraints faced by entrepreneurs, which is a common feature in emerging economies.
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  • DT N° 2021-006: Foreign Exchange Intervention, Capital Flows, and Liability Dollarization.
    • Author(s): Paul Castillo and Juan Pablo Medina.
    • Language: English
    • Date: August 2021
    • Abstract: This paper investigates the importance of foreign exchange intervention in dealing with shocks to global capital flows in emerging economies. We show in a VAR analysis that a shock to global capital flows has a sizable effect on economic activity, and this effect is amplified in emerging economies with liability dollarization. However, countries that systematically rely on sterilized foreign exchange intervention in response to movements in global capital flows, display lower output and real exchange rate volatility. Motivated by the empirical evidence, we develop a small open economy model with liability dollarization and balance sheets effects calibrated to an emerging economy. Our quantitative results show that liability dollarization amplifies the effects of fluctuations in capital flows and that foreign exchange intervention can reduce macroeconomic volatility and improve welfare. These results point to the importance of foreign exchange reserves in insulating emerging economies from the global financial cycle.
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  • DT N° 2021-005: Unconventional Credit Policy in an Economy under Zero Lower Bound.
    • Author(s): Jorge Pozo and Youel Rojas.
    • Language: English
    • Date: August 2021
    • Abstract: In this paper we develop a simple two-period model that reconciles credit demand and supply frictions. In this stylized but realistic model credit and deposit markets are interlinked and credit demand and credit supply frictions amplify each other in such a way that produces in equilibrium inefficiently low levels of credit and stronger reductions of the real and nominal interest rates, so an economy is much closer to the ZLB. However, an unconventional credit policy, that consists on central bank liquidity injection to banks provided they commit to issue loans (indirect central bank loans) that are guaranteed by the government, can undo partially the effects of the credit frictions and prevents the economy from reaching the ZLB. Since indirect central bank (CB) loans cannot be diverted by banks and are government-guaranteed, credit market interventions rise aggregate credit supply and positively affect the aggregate credit demand, respectively. However, once the economy is at the ZLB the effect of a credit policy is reduced due to a relatively stronger inflation reduction, which in turn reduces entrepreneurs' incentives to demand bank loans, and due to that the relative cost reduction from having access to cheaper indirect CB loans is smaller.
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  • DT N° 2021-004: Financial development, financial inclusion, and informality: New international evidence.
    • Author(s): Erick Lahura and María Paula Vargas.
    • Language: English
    • Date: March 2021
    • Abstract: This paper explores the empirical relationship between informality and several indicators of financial development (FD) and financial inclusion (FI). We exploit a panel of 152 countries with annual information between 1991 and 2017. Using several panel cointegration techniques and four groups of countries (full sample, developed, developing, and Latin American countries), we find evidence of a negative long-run relationship between informality and several FD/FI indicators. Moreover, long-run weak exogeneity tests indicate that some FD/FI indicators empirically cause less informality. Specifically, we find that in developing countries financial development reduces informality when measured as “financial credit” and “bank credit”, whereas financial inclusion reduces informality when measured as “number of bank accounts”. Additionally, for both developing countries and the full sample of countries, we find evidence of double causality between informality and financial development when the latter is measured as “bank deposit”; for Latin American countries, evidence of double causality is found when financial inclusion is measured as “number of ATMs”. These results suggest that higher credit to the private sector and more bank accounts have contributed to reducing informality in developing countries in the long run.
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  • DT N° 2021-003: Demographic dividend, productivity and growth.
    • Author(s): Mario Huarancca y Renzo Castellares.
    • Language: Spanish
    • Date: March 2021
    • Abstract: This paper studies the relationship among changes in the demographic structure and the per-capita and per-worker GDP growth of Peru. Our principal findings show that the demographic factor contributed 0,4 percentage points (pp) to the annual GDP growth in the 2000-2019 period. Furthermore, the impact from 5 pp shift of the workforce share out of 30-39 years old group to the 40-54 years old group increases the output per worker in 10 percent, given the accumulation of experience. Changes in the age structure of the workforce would have contributed 0,04 pp per year to the labor productivity growth for the 2010-2020 period. Therefore, the overall contribution of the demographic changes on the per-capita GDP through the direct impact of the demographic factor and its contribution through the labor productivity would have been 0,24 pp per year for the 2010-2020 period and 0,13 pp in the 2020-2030 period. Finally, the socio-economic conditions in which Peru receives the demographic dividend are not the best, in comparison to the developed countries that already experienced the demographic benefit. Thus, it is a priority to implement structural reforms that improve these conditions to allow greater benefits of the demographic dividend.
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  • DT N° 2021-002: The Impact of the Real Exchange Rate on Non-Traditional Exports using Microdata: Evidence from Chile and Peru.
    • Author(s): Renzo Castellares.
    • Language: English
    • Date: March 2021
    • Abstract: This study estimates the Bilateral Real Exchange Rate (BRER) impact on Non-Traditional Exports (NTX) of Chilean and Peruvian firms. Different from previous works about Chile and Peru, this paper considers a heterogeneous impact of the BRER on firm's exports, depending on firm's productivity. In addition, we estimate the impact of the real exchange rate of countries whose exports compete against Peruvian and Chilean exports in third markets. This variable has been barely used in the literature and its omission causes a downward bias on the estimation of the BRER elasticity on exports. To do this, we use detailed firm-level information of products and destinations of Chilean exports from 2004 to 2011, and Peruvian exports from 2007 to 2014.
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  • DT N° 2021-001: Forecasting Peruvian Macroeconomic Variables with Bayesian Vector Autorregressions with Time-Varying in the mean.
    • Author(s): Fernando Pérez Forero.
    • Language: English
    • Date: March 2021
    • Abstract: Macroeconomic Forecasting in a changing and uncertain environment over time is a great challenge today. This paper uses a Bayesian VAR with a time-varying mean and stochastic volatility, in order to elaborate forecasts for the Peruvian economy. The model is flexible enough to consider the structural changes that potentially occur in the economy. Forecasts are made mainly for variables such as inflation and GDP growth, although the model might be adapted to include other variables. The empirical model uses information from the survey of macroeconomic expectations as observables linked to the long-term means, following Banbura and van Vlodrop (2018). Results show a good fit, and reaffirm the idea associated with the use of expectations surveys to reduce long-term uncertainty, while the time varying parameters improve the predictive power of the model.
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2020

  • DT N° 2020-019: The Risk-Taking Channel of Monetary Policy: A New Approach and Evidence from Peru.
    • Author(s): Jorge Pozo and Youel Rojas.
    • Language: English
    • Date: December 2020
    • Abstract: The risk-taking channel of the monetary policy has been extensively studied (see, e.g., Adrian and Song Shin (2010); Borio and Zhu (2012); Jiménez, Ongena, Peydró and Saurina (2014)). Relative to the existing literature, we take a different view on the risk-taking behavior of banks, and rather than focusing on large versus small banks, we focus on how a bank can allocate loans differently across risky markets after a monetary policy shock. First, by using a theoretical model we show that an expansionary monetary policy shock creates the risk-taking channel, by altering a bank's appetite for risk and to rebalance its loans portfolio by issuing more loans in more risky markets relative to lower risky markets. Second, we take our model predictions to the data. We reach identification by using branch-level and province-bank-level data to control for omitted variables. Our branch-level estimation confirms that the sensitivity of lending to MP changes is increasing in the riskiness of borrowers. At higher levels of aggregation, our results hold economical and statistical significance and show robustness that the risk-taking channel of MP has sizable impact on the total lending issued by financial firms.
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  • DT N° 2020-018: How sticky are online prices? Evidence from Peru using Big Data.
    • Author(s): Hilary Coronado, Erick Lahura and Marco Vega.
    • Language: Spanish
    • Date: December 2020
    • Abstract: Motivated by the growing relevance of the e-commerce and the key role of price rigidity in explaining the real effects of monetary shocks, this paper measures the degree of stickiness of online prices in Peru. To this end, we analysed 4.5 million prices published daily on the web page of a representative department store in Peru. This big data was obtained using web scraping techniques which were applied daily since 2016. Based on the frequency of price changes and their duration, the results indicate that online prices in Peru are less sticky than in other countries.
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  • DT N° 2020-017: Assessing central bank communication through monetary policy statements: Results for Colombia, Chile and Peru.
    • Author(s): Marco Vega and Erick Lahura.
    • Language: English
    • Date: December 2020
    • Abstract: We build central-bank-specific dictionaries to obtain monetary policy tone indicators from published press releases about policy decisions. Tone indicators and their decomposition into different topical sources provide important information on monetary policy. We include the indicator in a number of structural VAR models to assess the effect of communication shocks on inflation expectations. We find some evidence on the effectiveness of communication.
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  • DT N° 2020-016: Why people use digital payments: Evidence from Peru.
    • Author(s): José Aurazo and Milton Vega.
    • Language: Spanish
    • Date: December 2020
    • Abstract: This paper gives a first approach to explain the determinants of the usage of digital payments in Peru. For that purpose, we use the National Household Survey (ENAHO), which collects answers about ownership of accounts and cards, as well as the usage of different payment instruments (cash, credit card, debit card, electronic transfer, etc.) to make purchases in 9 product categories, between 2015 and 2018. We use a Heckman bi-probit model to correct the selection bias, since the usage of digital payments is observed only for the financially included people. The econometric results show that the usage of digital payments is more likely among people between 25 and 40 years old, with higher education, with formal employment, and who live in urban areas. Likewise, it is observed that the probability of paying digitally is reduced if the person belongs to the lowest quintiles of household spending per capita and increases if they live in a district belonging to the highest quintiles of presence of the financial system.
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  • DT N° 2020-015: External shocks and FX intervention policy in emerging economies.
    • Author(s): Alex Carrasco and David Florián Hoyle.
    • Language: English
    • Date: December 2020
    • Abstract: This paper discusses the role of sterilized foreign exchange (FX) interventions as a monetary policy instrument for emerging market economies in response to external shocks. We develop a model for a commodity exporting small open economy in which FX intervention is considered as a balance sheet policy induced by a financial friction in the form of an agency problem between banks and its creditors. The severity of banks’ agency problem depends directly on a bank-level measure of currency mismatch. Endogenous deviations from the standard UIP condition arise at equilibrium. In this context, FX interventions moderate the response of financial and macroeconomic variables to external shocks by leaning against the wind with respect to real exchange rate pressures. Our quantitative results indicate that, conditional to external shocks, the FX intervention policy successfully reduces credit, investment, and output volatility, along with substantial welfare gains when compared to a free-floating exchange rate regime. Finally, we explore distinct generalizations of the model that eliminate the presence of endogenous UIP deviations. In those cases, FX intervention operations are considerably less effective for the aggregate equilibrium.
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  • DT N° 2020-014: Unconventional Credit Policy in an Economy with Supply and Demand Credit Frictions.
    • Author(s): Jorge Pozo and Youel Rojas.
    • Language: English
    • Date: December 2020
    • Abstract: In this paper we develop a DSGE model where we reconcile credit demand and supply frictions and evaluate the effects of an unconventional credit policy. The credit policy consists on central bank loans to firms that are directly provided by the central bank or through commercial banks and they are guaranteed by the government. Credit supply frictions allow us to mimic a more realistic dynamics of credit after a monetary policy shock. We find that the credit policy diminishes the impact of a negative shock in the economy. Since central bank loans are not subject to the moral hazard problem between bankers and depositors, credit market interventions rise aggregate credit supply. The government guarantees reduce entrepreneurs’ default probability and hence increases aggregate credit demand. In periods of high uncertainty government guarantees’ effects become very significant. Also, when bank loans have a higher seniority than central bank loans, the effectiveness of the credit policy on reducing real fluctuations increases.
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  • DT N° 2020-013: Liquidity Regulation in a Monetary Economy.
    • Author(s): Juan Carlos Aquino.
    • Language: English
    • Date: December 2020
    • Abstract: A market failure that justifies liquidity regulation lies on the incompleteness of financial markets when there is risk about the aggregate distribution of transaction types. I develop a framework in which outside (fiat, government-provided) and inside (plastic, bank-created) money co-exist as means of payment under either complete or incomplete financial markets for aggregate risk. The welfare analysis is reduced to comparing only two parameters: the currency-to-liability ratio δ which is set by the government and the fraction ρ of banks’ depositors engaged in cash-only transactions (inside money cannot be accepted). In equilibrium, when δ < ρ fiat currency is relatively scarce in the inter-bank market and then government bonds (which are transformed into liquid liabilities by banks) are less valuable than cash. This forces banks to offer higher consumption with plastic money to induce self-selection among depositors. Welfare is lower under incomplete markets: depositors exert a higher labor effort (precautionary motive) to accumulate more assets as perfect risk-sharing is unattainable (unlike the case of complete markets). Also, a higher cash requirement on banks is equivalent to an implicit increase in the policy parameter δ which makes bonds scarcer and more valuable in the inter-bank market. Therefore, a liquidity requirement is not welfare-improving because it reduces the likelihood of bank runs but because it increases the inter-bank market price of bonds which in turn improves risk-sharing. Finally, when the government sets δ = ρ the welfare measures under complete and incomplete markets coincide as the Friedman rule holds.
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  • DT N° 2020-012: The Effects of Countercyclical Capital Buffers on Macroeconomic and Financial Stability.
    • Authors: Jorge Pozo.
    • Language: English
    • Date: October 2020
    • Abstract: We quantitatively study the effectiveness of several forms of countercyclical capital buffers on promoting macroeconomic and financial stability. To do this we introduce banks and a regulatory capital requirement rule to an open economy DSGE model. The capital requirement consists of a fixed part and a countercyclical part. We find that the tighter fixed capital requirements, the better able banks are to handle a financial crisis, but these also reduce long-term consumption and welfare. More importantly, countercyclical buffers that respond to deviation of the observed credit to GDP ratio from its long-term value, or to percentage deviation of the observed credit (or GDP) from its long-term value improve macroeconomic and financial stability and increase welfare. Being forward looking does not pay off. Interestingly, when buffers respond to percentage deviation of asset prices from their long-term values or to credit (or GDP) growth, macroeconomic and financial stability are negatively affected.
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  • DT N° 2020-011: Policies for Transactional De-Dollarization: A Laboratory Study.
    • Authors: Johar Arrieta, David Florián, Kristian López y Valeria Morales.
    • Language: English
    • Date: October 2020
    • Abstract: Partial currency substitution typically occurs in small economies amid economic crises, when the local currency loses some of its essential functions and a foreign currency, usually the US Dollar, is widely adopted. Interestingly, the coexistence of two currencies often persists after macroeconomic stability has been restored, which imposes challenges to the conduct of monetary policy. Central banks have responded by applying de-dollarization policies. This paper studies the effectiveness of three of them: (1) taxes on transactions in foreign currency among domestic agents, (2) storage costs on foreign currency holdings, and (3) information on the acceptance rate of the foreign currency among local agents. We extend the model in Matsuyama et al. (1993) to study the effects of these policies, both theoretically and experimentally. We contribute to the theoretical literature by characterizing a new circulation regime where agents use the foreign currency solely for international trade and settle domestic transactions exclusively in local currency. Our experimental evidence suggests that both taxes and storage costs reduce the overall acceptability of foreign currency in international and domestic transactions (around 40 percent in both cases). Information treatment does not have a significant impact relative to baseline.
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  • DT N° 2020-010: A heatmap for the Peruvian financial market.
    • Authors: Alex Cisneros, Diego Chicana, Derry Quintana, Rafael Nivín, Elmer Sánchez y Diego Yamunaqué.
    • Language: Spanish
    • Date: November 2020
    • Abstract: The document proposes the development of a heatmap for the Peruvian financial market that serves as a risk monitoring tool to financial stability. This tool allows the identification of potential vulnerabilities in the capital markets, the banking system and the money market. Based on the methodology proposed by Aikman and others (2017), a heatmap was developed to characterize the episodes of financial stress in the Peruvian economy throughout the last 15 years. Likewise, the proposed heatmap can be used as an early warning tool to identify potential future financial stress events.
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  • DT N° 2020-009: A Leading Indicator for Employment using Big Data.
    • Authors: Renzo Castellares y Gerson Cornejo.
    • Language: Inglés
    • Date: June 2020
    • Abstract: This paper uses job ad information from Peru's three main employment search websites to estimate an employment leading indicator. The information from more than 25 thousand job ads per day, posted by more than 15 thousand firms, allows us to classify ads by industry and predict the evolution of employment in the commerce, manufacturing, and services sectors. The results show that this indicator has better properties for predicting the level of employment relative to alternative models based on the mean quadratic error criterion.
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  • DT N° 2020-008: Information Heterogeneity and the Role of Foreign Exchange.
    • Authors: Carlos Montoro and Marco Ortiz.
    • Language: English
    • Date: November 2020
    • Abstract: In this paper we introduce information heterogeneity in the FX market in line with Bacchetta and Wincoop (2006) in attempt to extend their results to a DSGE framework. We show that the introduction of information heterogeneity, in the shape of both dispersed information about fundamentals and non-fundamental based shocks, generates a magnification effect that can help obtaining a better approximation to the empirical moments. Also, FX intervention can improve the connection between the exchange rate and its fundamentals. Finally, in the methodological front, we extend the procedure proposed by Townsend (1983) to solve dynamic stochastic general equilibrium (DSGE) models with heterogeneous expectations.
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  • DT N° 2020-007: La Migración Interna en el Perú, 2012-2017.
    • Authors: Mario Huarancca, Willy Alanya and Renzo Castellares.
    • Language: Spanish
    • Date: November 2020
    • Abstract: Este documento analiza la migración interna reciente a nivel distrital y provincial, así como sus determinantes, utilizando información de los censos de población y vivienda de 2007 y 2017. Entre los principales resultados se encuentra que la menor pobreza y ruralidad, así como el mayor acceso a servicios (agua por red pública, electricidad y educación) en los distritos de destino, explican la migración entre los años 2012-2017. Asimismo, los datos recientes revelan que la emigración se orienta hacia los distritos de mayor población antes que a ciudades intermedias, y que tanto la migración como el crecimiento poblacional se concentran en pocos distritos..
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  • DT N° 2020-006: Card acceptance by small merchants: An application of the tourist test to Peru.
    • Authors: José Aurazo and Milton Vega.
    • Language: English
    • Date: November 2020
    • Abstract: In this paper, we present the results obtained using data from small merchants in Peru to estimate the level of the interchange fee that makes them indifferent between accepting cash and debit card payments. We apply an extended version of the tourist test (proposed by Rochet and Tirole) that includes tax evasion as a factor in the merchants’ decision between cash and card payments. Also, we propose a new empirical approach coined as the cash-flow approach that assumes that small merchants estimate the overall cost in terms of the average ticket related to cash and card payments. The data from small merchants suggest that tax evasion is higher in cash payments, reducing considerably the tourist test threshold. Also, the cash-flow approach allows avoiding the “indetermination” issues reported in other empirical studies, associated with the dependence of the interchange fee on the level of the transaction value and how costs are distributed. However, the results obtained depend on the mark-up that small merchants charge above cost price, because it is an input to calculate the benefit from tax evasion.
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  • DT N° 2020-005: Interconexiones Bancarias y Riesgo de Liquidez Sistémico en el Perú.
    • Authors: Walter Cuba, Erick Oré and Hiroshi Toma
    • Language: Spanish
    • Date: November 2020
    • Abstract: El siguiente trabajo presenta un nuevo indicador para identificar a entidades financieras con importancia sistémica en la liquidez del sistema financiero. La probabilidad de que una entidad cause problemas de liquidez en las demás es a lo que nosotros llamamos riesgo de liquidez sistémico. Se propone un algoritmo para el contagio del fondeo y un indicador que mide la posibilidad de que surja un problema que no pueda ser absorbido por el mercado. Los resultados muestran que durante el periodo de 2006 al 2018 el riesgo de liquidez sistémico se ha reducido en moneda nacional, mientras que, en moneda extranjera, no se ha visto un riesgo significativo en ningún momento.
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  • DT N° 2020-004: Regional Dynamics of Income Inequality in Peru.
    • Author: Luis Castillo.
    • Language: English
    • Date: March 2020
    • Abstract: This paper discusses the dynamics of income inequality across regions in Peru between 2007 and 2017. Aiming to fill a gap in the usual inequality diagnosis, the article starts by describing the trends in income inequality for each region, and then focuses on (i) identifying the fraction of aggregate inequality that has been explained by inequality between and within regions, and (ii) quantifying the contributions of demographic and socioeconomic factors to these trends. All measurements are done using data from ENAHO, the National Household Survey of Peru.
      As regions in Peru are usually understood through political and geographical (longitudinal) categories, I employ both criteria for the purpose of this discussion. The first finding is that all but two political regions (Loreto and Madre de Dios) and all geographical regions in Peru experienced a reduction in inequality between 2007 and 2017 as measured by the Gini coeficient, but the equality gains are highly heterogeneous and seem to have slowed down since 2012. Meanwhile, using Theil indices, I show that most of aggregate inequality in Peru is explained by inequality within regions, although the between component is becoming more relevant just as inequality reduction decelerates. Finally, using counterfactual distributions, I find that the share of adults in the household, labor income, and public monetary transfers have been among the most important drivers of inequality reduction across most regions and in Peru as a whole.
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  • DT N° 2020-003: An exploration of the Stability of the Phillips Curve in Peru.
    • Author: Youel Rojas.
    • Language: Spanish
    • Date: February 2020
    • Abstract: This paper empirically explores whether the dynamics of inflation and its determinants have changed over time in Peru. In particular, we study the slope of the Phillips Curve to seek for evidence whether a flattening of this curve can explain the apparent lower synchronization between inflation and measures of demand pressure after 2014, and therefore an absence of disinflation. Based on estimates of a nonlinear Phillips curve, we find no evidence about a change in the slope of the Phillips Curve. The period of absence of disinflation may be better explained by shocks to inflation expectations together with an increase in the relative weight of the inflation expectation component in the Phillips Curve and a temporal rise in inflation inertia.
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  • DT N° 2020-002: Impact of Venezuelan Migration on Employment and Wages: The Peruvian Case.
    • Author(s): Roger Asencios and Renzo Castellares.
    • Language: Spanish
    • Date: January 2020
    • Abstract: This paper assesses the short-term impact of the recent Venezuelan migration wave over employment and wages of Peruvian workers in Lima and Callao. The study uses the Permanent Employment Survey and finds that a raise in the immigration level of about one percent of the economic active population reduces the probability of keeping the job and income from main occupation for a subset of workers. In particular, and in relative terms, the more sensitive group is that of women between 14 and 24 years old and with low educational level. However, the share of this group in total workforce in Lima and Callao is just 2.9 percent. On the other hand, the expenditure made by migrants in Lima might have contributed in 0.33 percentage points to the GDP growth rate in 2018. Last, given the increase in the workforce and given that the average educational level of immigrants is superior to that of nationals, it is likely that productivity and potential GDP may rise in the short to medium run.
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  • DT N° 2020-001: Financial vulnerability and Growth at Risk (GaR).
    • Author(s): Rocío Gondo.
    • Language: Spanish
    • Date: February 2020
    • Abstract: This work empirically analyzes if financial variables are more important in predicting GDP growth under risk scenarios. We use Peruvian data to estimate the loss in GDP growth under extreme risk scenarios using the "Growth at Risk" methodology developed by Adrian, Boyarchenko & Giannone (2019). We consider 3 different categories of financial risk data: leverage variables, domestic asset prices and foreign financial variables.
      The results show that excessive credit and asset prices growth rates are good indicators of a downturn in future financial conditions and of a lower GDP growth under risk scenarios using different forecast horizons. Moreover, including financial variables improve the forecast of GDP growth rates under crisis scenarios, such as the one observed during the Global Financial Crisis of 2008-2009.
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2019

  • DT N° 2019-022: SFX Interventions, Financial Intermediation, and External Shocks in Emerging Economies.
    • Authors: Alex Carrasco, David Florián y Rafael Nivín.
    • Language: Inglés
    • Date: Diciembre 2019
    • Abstract: In this document, we study the role of sterilized foreign exchange (SFX) interventions as an additional monetary policy instrument for emerging market economies in response to external shocks. We develop a model in order to analyze SFX interventions as a balance sheet policy induced by a financial friction in the form of an agency problem between banks and depositors. The severity of the bank's agency problem depends directly on a measure of currency mismatch at the bank level. Moreover, credit and deposit dollarization co-exists in equilibrium as endogenous variables. In this context, SFX interventions can lean against the response of the bank's lending capacity and ultimately the response of real variables by moderating the response of the exchange rate.
      Furthermore, we take the model to data by calibrating it to replicate some financial steady-state targets for the Peruvian banking system as well as matching the impulse responses of the macroeconomic model to the impulse responses implied by an SVAR model. Our results indicate that SFX interventions successfully reduce GDP and investment volatility by about 6% and 14%, respectively, when compared to a flexible exchange rate regime. Moreover, SFX interventions reduce the response of GDP to foreign interest rate and commodity price shocks by around 11 and 22 percent, respectively. Hence, this policy produces significant welfare gains when responding to external shocks: if the Central Bank does not intervene in the Forex market in the face of external shocks, there would be a welfare loss of 1.1%.
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  • DT N° 2019-021: Corporate earnings sensitivity to FX volatility and currency exposure: evidence from Peru.
    • Author: Alberto Humala.
    • Language: Inglés
    • Date: Diciembre 2019
    • Abstract: Using firm-level information on currency risk positions, the effects of nominal foreign exchange shocks on non-financial corporate returns are assessed through a balanced-panel data approach. Depreciation shocks directly affect firms that have net short positions in foreign currency by decreasing their net asset valuation at higher exchange rates. Total earnings sensitivity to these pressures would depend on both the magnitude of the shocks (usually non-linear) and the extent of a firm's hedging strategy. The response from individual firms varies from adjusting their exposure through spot market operations to implementing derivative-hedging strategies. Indeed, an effective hedging policy might reduce significantly profit-loss sensitivity to currency volatility. Other enterprises just absorb currency losses considering shocks to be transitory or because core-business profits are large enough to overcome those losses. Interestingly, a significant depreciation episode does not necessarily induce non-user firms to start hedging through financial derivatives.
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  • DT N° 2019-020: Cross-Border flows and the effect of Global Financial shocks in Latin America.
    • Authors: Rocio Gondo y Fernando Pérez.
    • Language: Inglés
    • Date: Diciembre 2019
    • Abstract: This work quantifies the effect of changes in global financial conditions on cross-border flows and domestic financial and macroeconomic variables for a group of countries in Latin America. Using the BIS database of international banking statistics, we consider heterogeneous effects of different types of international financing (credit from global banks to domestic banks and non-financial firms and bond issuance by non-financial firms), on the behavior of the domestic banking system and the transmission to the real economy through the link between bank credit, investment and output. Consistent with the implications from a DSGE model such as Aoki et al. (2018), our results show that an increase in foreign interest rates translate into lower external funding for banks and thus into lower credit growth and higher domestic interest rates. This effect is amplified through an exchange rate depreciation due to capital outflows. We find evidence of a larger drop in flows from global banks to domestic banks relative to those from global banks to non-financial firms. In terms of the real economy, we observe a reduction in GDP growth, although not significant, and an increase in inflation due to the pass through effect from the exchange rate to prices.
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  • DT N° 2019-019: The Small Open Economy New-Keynesian Phillips Curve: Specification, Structural Breaks and Robustness.
    • Author: Juan Carlos Aquino.
    • Language: Inglés
    • Date: Diciembre 2019
    • Abstract: This paper empirically assesses the concern on whether the slope of the Phillips curve with respect to the output gap has decreased (i.e. the Phillips curve has “flattened”). We derive a generalized lag-augmented version of the New-Keynesian Phillips Curve for a small open economy (Galí and Monacelli, 2005) in order to specify a semi-structural estimation equation. For the Peruvian economy, such equation is estimated via the Generalized Method of Moments for the Inflation-Targeting regime (January 2002 - March 2019) and the post-crisis (January 2008 - March 2019) periods. We found that the slope parameter has remained stable for both estimation periods. Moreover, the expectation channel has gained more relevance for the post-crisis period, a result that is consistent with a lower persistence of inflation dynamics. Our results are also consistent with the presence of long run nominal homogeneity across estimation samples.
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  • DT N° 2019-018: Does a Horizontal Section Exist in Our Phillips 'Curve'? Peru 2005-2017.
    • Author: Carlos R. Barrera Chaupis.
    • Language: Español
    • Date: Diciembre 2019
    • Abstract: The paper investigates whether the existence of a relatively horizontal section in the Phillips curve can explain a possible flattening linear aggregate version for the case of Peru. The paper starts with the linear semi-structural model for regional Phillips 'curves' as proposed by Fitzgerald & Nicolini (2014), where the identification of the output-gap parameter in the aggregate 'curve' is feasible in spite of monetary policy's taking compensatory actions in an optimal way. The paper then proposes a nonlinear version of this regional model that allows a continuous change of the inflation-output gap relationship depending upon the variation range of the output-gap, i.e., the regional Phillips curve may encompasses a relatively horizontal section. The empirical evidence (i) disproves the hypothesis that a flattening Phillips relationship exists (equivalently, the hypothesis that the output-gap parameter is zero) in the linear models as well as in the nonlinear model that assumes regional heteroskedasticity (e.i., a flattening Phillips relationship does not exist), and (ii) only the nonlinear model that assumes regional homocedasticity supports the existence of a relatively horizontal section (e.i., a flattening Phillips relationship exists).
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  • DT N° 2019-017: Capital Flows and Bank Risk-Taking.
    • Author: Jorge Pozo.
    • Language: Inglés
    • Date: Diciembre 2019
    • Abstract: I build up a framework to study the dynamics of the default probability of banks and the excess bank risk-taking in an emerging economy. I calibrate the model for the 1998 Peruvian economy. The novelty result is that an infinity-period model creates an intertemporal channel that amplifies banks' incentives to take excessive risk. I simulate the sudden stop that hit Peru in 1998 as a negative shock on the foreign borrowing limit of banks. The model accurately predicts the substantial short-term rise in the morosity rate through the rise of the excess bank risk-taking after the sudden stop.
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  • DT N° 2019-016: Bank Risk-Taking in a Small Open Economy.
    • Author: Jorge Pozo.
    • Language: Inglés
    • Date: Diciembre 2019
    • Abstract: I develop an open economy model with banks facing foreign borrowing limits. The interaction of banks' limited liability and deposit insurance leads banks into socially excessive risk-taking, which involves credit volume and not the type of credit. The novel result is that, under a realistic calibration, a lower foreign interest rate reduces the excessive bank risk-taking. Since the foreign borrowing limit is binding, this lower rate does not boost banks' credit, but rather decreases it, since for a given capital the lower rate reduces the default probability of banks, which diminishes their risk-taking incentives. Through the same mechanism, a greater access to the international credit markets reduces the excessive risk-taking by banks. Hence, less banking regulation to achieve socially efficient risk-taking is required after a foreign rate reduction and a higher foreign borrowing limit.
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  • DT N° 2019-015: The effect of the investment in infrastructure on the tourist demand: evidence of the archaeological complex of Kuélap.
    • Authors: Erick Lahura, Lucely Puscan y Rosario Sabrera.
    • Language: Spanish
    • Date: December 2019
    • Abstract: What is the effect of infrastructure investment on tourism demand? To answer this question, the case of the Kuélap Archaeological Complex is analyzed, which has become more attractive and accessible after the construction of a cable car system and the remodeling of the Chachapoyas and Jaén airports. The hypothesis is that infrastructure investment has had an important effect on Kuélap’s tourist demand. We evaluate this hypothesis using a comparative case study based on a ``synthetic control'' constructed using the information of different archaeological sites of Peru. The results show that investment in tourism infrastructure caused an increase of approximately 100 percent in the number of visits to Kuélap.
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  • DT N° 2019-014: Reserve requirements as a financial stability instrument.
    • Authors: Carlos Cantú, Rocio Gondo y Berenice Martínez.
    • Language: English
    • Date: December 2019
    • Abstract: We quantify the economic trade-offs of using reserve requirements (RR) with a financial stability objective. We estimate the costs of a tightening in RR by calculating the fall of bank credit and industrial production growth in a panel VAR. Then, we estimate the benefits by calculating the drop in frequency and incidence of financial distress episodes in an early warning system model. We find that RR are an effective financial stability tool. The economic gains from a lower probability of financial distress more than compensate the initial reduction in economic activity. Additionally, we find that the effects of RR, both in terms of costs and benefits, are greater in emerging market economies compared to advanced economies. Finally, we show that single RR and RR by maturity have a greater positive effect, whereas RR by currency could be responding to other objectives such as financial dedollarization.
  • DT N° 2019-013: Macroeconomic Effects of Credit Deepening in Latin America.
    • Authors: Carlos Carvalho, Nilda Pasca, Laura Souza, Eduardo Zilberman.
    • Language: English
    • Date: December 2019
    • Abstract: We augment a standard dynamic general equilibrium model with financial frictions, in order to quantify the macroeconomic effects of the credit deepening process observed in Latin America in the last decade - most notably in Brazil. In the model, a stylized banking sector intermediates credit from patient households to impatient households and entrepreneurs. Motivated by the Brazilian experience, we allow the credit constraint faced by households to depend on labor income. Our model is designed to isolate the effects of credit deepening through demand-side channels, and abstracts from potential effects of credit supply on total factor productivity. In the calibrated model, credit deepening generates only modest above-trend growth in consumption, investment, and GDP. Since Brazil has experienced one of the most intense credit deepening processes in Latin America, we argue that the quantitative effects that hinge on the channels captured by the model are unlikely to be sizable elsewhere in Latin America.
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    • This paper has been published in the Journal of Money, Credit and Banking
  • DT N° 2019-012: Measuring the output gap, potential output growth and natural interest rate from a semi-structural dynamic model for Peru.
    • Authors: Luis Castillo y David Florián Hoyle.
    • Language: English
    • Date: December 2019
    • Abstract: This paper uses a calibrated version of the Quarterly Projection Model (MPT, for its acronym in Spanish), a semi-structural dynamic model used by the Central Reserve Bank of Peru for forecasting and policy scenario analysis, to jointly estimate the output gap, potential output growth and natural interest rate of the Peruvian economy during the inflation targeting regime (between 2002 and 2017). The model is employed as a multivariate filter with a sophisticated economic structure that allows us to infer the dynamics of non-observable variables from the information provided by other variables defined ex ante as observable. As the results from the Kalman filter are sensible to the variables declared as observable, we use five groups of variables to be defined as such to build probable ranges for our estimates. The results indicate that the estimated output gap is large in amplitude and highly persistent while potential output growth is very smooth. Therefore, most of the variation in Peruvian economic activity during the inflation targeting regime can be attributed to the former. The estimation of the output gap also proves that monetary policy has been extensively responsive to this leading indicator of inflation. Meanwhile, the real natural interest rate is estimated to be considerable stable, averaging 1,6 percent in the sample with only a sharp decline to 1,3 percent during the financial crisis. The main finding of the paper, however, is that there has been a steady deceleration of potential output growth since 2012. A growth-accounting exercise proves that this trend follows mostly a reduction in total factor productivity (TFP) growth during the same time frame (although the drop of capital and labour contributions jointly explain almost a third part of average potential output growth slowdown between 2010-2013 and 2014-2017).
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  • DT N° 2019-011: LThe communication of monetary policy in South America’s central banks.
    • Authors: Paul Castillo, Rafael Herrada, Carlos Montoro y Fernando Pérez.
    • Language: Spanish
    • Date: December 2019
    • Abstract: Over the past two decades, central banks around the world, including in the Latin American region, have made significant efforts to improve monetary policy communication channels. In particular, press releases and information notices on monetary policy decisions and central bank governors’ declarations signal future changes in monetary policy (forward guidance). The main future communication challenges for central banks in the region are: (i) communicating with a diverse public; (ii) improving communication with younger audiences; (iii) developing formal instruments for assessing and designing communication strategies; and (iv) improving communication in a context of rapid technological innovation and digital transformation.
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  • DT N° 2019-010: The economic legacy of General Velasco: Long-term consequences of interventionism.
    • Authors: César Martinelli y Marco Vega.
    • Language: English
    • Date: December 2019
    • Abstract: We apply synthetic control methods to study the long-term consequences of the interventionist and collectivist reforms implemented by the Peruvian military junta of 1968-1975. We compare long-term outcomes for the Peruvian economy following the radical reforms of the early 1970s with those of two controls made of similar countries, one chosen in the Latin American region and another one chosen from the world at large. We find that the economic legacy of the junta includes sizable loses in GDP along two decades, beyond those that can be attributed to adverse international circumstances. The evidence suggests that those loses can be attributed both to a decline in capital accumulation and to a fall in productivity.
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  • DT N° 2019-009: Non-performing portfolio in foreign currency and the real exchange rate: Evidence for Peru, 2003-2018
    • Authors: Erick Lahura y Freddy Espino.
    • Language: Spanish
    • Date: December 2019
    • Abstract: The aim of this paper is to assess whether unexpected changes in the real exchange rate have an effect on the dynamics of the delinquent portfolio of foreign currency loans. The paper estimates the dynamic relationship between delinquencies in foreign currency and the real exchange rate. We use a VAR with foreign exchange shocks identified via both a recursive and long-run restriction approaches. The results indicate that in the face of a greater real depreciation of the local currency, the delinquent portfolio in foreign currency increases at an aggregate level and by type of portfolio (firms, households consumption and mortgages), reaching its maximum effect between 7 and 10 months after the occurrence of the exchange shock. In addition, we find that the firms’ delinquent portfolio is the one that registers the greatest increase.
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  • DT N° 2019-008: Consumption dynamics and the expectation channel in a Small Open Economy.
    • Authors: César Carrera and Miguel Puch.
    • Language: English
    • Date: December 2019
    • Abstract: The transmission mechanism between consumption and its fundamentals has been under review in the literature from Friedman’s permanent income hypothesis to household’s liquidity constraints. One particular angle to explain consumption is focused on the role of consumer expectations as a determinant of consumption spending. Here we explore alternative measures for consumer expectations (captured by surveys to households) by taking into account general manager expectations and by using imports of durable consumption goods (which capture consumer confidence about future economic conditions). We argue that, for a small open economy, the expectations channel is well captured by alternative measures. We also find that even though there is a pass-through from expectations to consumption, this effect tends be short-lived. Moreover, we report those values and periods of time for which the alternative expectation measures have a significant impact on consumption.
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  • DT N° 2019-007: Determinants of Credit Growth and the Bank Lending Channel in Peru: A Loan Level Analysis
    • Authors: José Bustamante, Walter Cuba and Rafael Nivin
    • Language: Spanish
    • Date: July 2019
    • Abstract: This paper uses loan-level data from Peru’s credit registry to determine how the role of bankspecific characteristics (i.e. bank size, liquidity, capitalization, funding, revenue, and profitability) may affect the supply of credit in domestic and foreign currency. Also, we analyze how these characteristics affect the banks’ response to monetary policy shocks. Finally, we assess how the link between bank-specific characteristics and credit supply is affected by global financial conditions and commodity price changes. Our results show that well-capitalized, high-liquidity, low-risk, more profitable banks tend to grant more credit, especially in domestic currency. Moreover, we found evidence that reserve requirements both in domestic and foreign currency are effective in curbing domestic credit in Peru, giving support to the BCRP’s active use of RRs as a macroprudential tool to smooth out the credit cycle. Last, we found that banks with more diversified funding sources are less affected after a negative commodity price change.
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  • DT N° 2019-006: Estimación de un Índice de Condiciones Financieras para el Perú
    • Authors: Rafael Nivín and Fernando Pérez Forero
    • Language: Spanish
    • Date: May 2019
    • Abstract: An index of financial conditions (ICF) is estimated for the Peruvian economy in the period between 2004 and 2018. For this purpose, the methodology proposed by Koop and Korobilis (2014), i.e. a Factor Augmented VAR model with time varying parameters (TVP-FAVAR). As a result, this methodology produces a representative indicator of all the variables relevant to the financial system and, given its flexibility, it also allows the contributions of the variables included in the model to change throughout the sample. Using this Index of financial conditions, the interrelation between the real and financial sector in the Peruvian economy is quantified, where in particular the reaction of the estimated Index to different macroeconomic shocks is estimated and the co-movement of this with the GDP growth is also studied. Subsequently, the historical decomposition of the estimated index is shown. The future agenda focuses on evaluating the predictive capacity of this Index and also on its capacity to become an early warning mechanism (G´omez et al., 2011).
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  • DT N° 2019-005: Assessing the impact of credit de-dollarization measures in Peru
    • Authors: Alex Contreras, Rocío Gondo, Erick Oré and Fernando Pérez Forero
    • Language: English
    • Date: April 2019
    • Abstract: This paper assesses the impact of de-dollarization measures implemented by the Central Reserve Bank of Peru between the years 2013 and 2016. Our results show that, despite an already slight downward trend in credit dollarization indicators before their implementation, the pace of de-dollarization increased after the adoption of the mentioned policy measures, especially after the announcement in the beginning of 2015. We find evidence that since the announcement of the first policy measure, 6 out of the 10 percentage point reduction in credit dollarization is related to the implementation of the De-dollarization Program. In contrast to a generalized impact of measures in 2015 onwards on all market segments, de-dollarization measures in 2013 affected mainly certain segments by firm size such as corporate and small firms. In addition, an heterogeneous impact is identified by loan size, where banks preferred to substitute larger loans from foreign to domestic currency.
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  • DT N° 2019-004: Estimation of Private Consumption from Main Categories within the Input-Output Table
    • Author: César Carrera
    • Language: Spanish
    • Date: February 2019
    • Abstract: Una forma de entender el consumo privado es subdividir esta variable macroeconómica agregada en sus componentes y estudiar las partes. En este documento se estima el comportamiento de los componentes más importantes del consumo privado al cual se denomina componentes principales. Tomando como punto de inicio la información de la Tabla Insumo Producto para distintos años, se utiliza un conjunto de variables proxi para cada componente a partir de los cuales se obtiene una distribución del consumo por componente para cada año. Los componentes restantes forman parte de una serie denominada Otros, cuyo rol es de disciplinar los resultados mediante el registro de ciertas regularidades en su conducta. Esta metodología permite proyectar el consumo privado con un bajo error de proyección.
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  • DT N° 2019-003: Reducing Informality Using Two-Sided Incentives: Theory and Experiment.
    • Authors: Francisco Galarza and Fernando Requejo (Universidad del Pacífico)
    • Language: English
    • Date: February 2019
    • Abstract: We study the impact of two-sided incentives on the reduction of informality. We model those incentives using the notion of network externalities, which link the (formal or informal) merchant’s profits to the type of customers they serve (formal or informal). Our theoretical framework yields two straightforward testable implications: the merchant will find more profitable to become formal (or informal), as long as more of their customers are formal (or informal); and, formal and informal commercial sectors may coexist in equilibrium. We test these hypotheses using data from a field experiment, conducted with micro and small enterprises in Lima, Peru. Our subjects had to choose, in a repeated fashion, among three ‘platforms’, which proxy for being formal, informal, or performing a reservation activity. We then changed the relative size of the network of formal vis-á-vis informal customers, in order to calculate the consumer’s network externality. We find that the network externality is relatively large, a result that opens up the possibility to reduce commercial informality using two-sided incentives. Moreover, the platform choice between the formal and informal sectors is sensitive to risk preferences.
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  • DT N° 2019-002: Lending frictions and nominal rigidities: Implications for credit reallocation and TFP
    • Authors: David Florian (BCRP) and Johanna Francis (Fordham University)
    • Language: English
    • Date: February 2019
    • Abstract: In most modern recessions there is a sharp increase in job destruction and a mild to moderate decline in job creation, resulting in unemployment. The Great Recession was marked by a significant decline in job creation particularly for young firms in addition to the typical increase in destruction. As a result job reallocation fell. In this paper, we explicitly propose a mechanism for financial shocks to disproportionately affect young (typically) smaller firms via credit contracts. We investigate the particular roles of credit frictions versus nominal rigidities in a New Keynesian model augmented by a banking sector characterized by search and matching frictions with endogenous credit destruction. In response to a financial shock, the model economy produces large and persistent increases in credit destruction, declines in credit creation, and an overall decline in reallocation of credit among banks and firms; total factor productivity declines, even though average firm productivity increases, inducing unemployment to increase and remain high for many quarters. Credit frictions not only amplify the effects of a financial shock by creating variation in the number of firms able to produce they also increase the persistence of the shock for output, employment, and credit spreads. When pricing frictions are removed, however, credit frictions lose some of their ability to amplify shocks, though they continue to induce persistence. These findings suggest that credit frictions combined with nominal rigidities are a plausible transmission mechanism for financial shocks to have strong and persistent effects on the labor market particularly for loan dependent firms. Moreover, they may play an important role in job reallocation across firms.
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  • DT N° 2019-001: Effects of a Mandatory Local Currency Pricing Law on the Exchange Rate Pass-Through
    • Authors: Renzo Castellares and Hiroshi Toma
    • Language: English
    • Date: January 2019
    • Abstract: We analyze whether a 2004 law requiring firms to express prices in the local currency in Peru, which had experienced a high degree of price dollarization, affected the exchange rate pass-through (ERPT).We hypothesize that the enactment of the law introduced menu costs for those firms that set their prices in dollars, prompting several of them to make a permanent switch from dollars to soles. Using disaggregated consumer price index (CPI) data, we find that after the enactment of the law, the ERPT was completely offset for non-durable goods with dollarized prices, and partially offset for durable goods with dollarized prices. These effects could be due to different shares of the imported content, market power and varying mark-ups.
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2018

  • DT N° 2018-012: The transmission of Exogenous Commodity and Oil Prices Shocks to Latin America. A Panel VAR approach
    • Author: Rocío Gondo y Fernando Pérez
    • Language: English
    • Date: December 2018
    • Abstract: During the last sixteen years, we have experienced an episode of commodity price boom and bust. Despite being exogenous to Latin America, commodity and oil price shocks are extremely relevant for explaining macroeconomic fluctuations. Thus, in this paper we assess the dynamic impact of these price fluctuations for relevant macroeconomic and financial variables for commodity exporting countries in the region (Chile, Colombia, Mexico and Peru) using a Bayesian Hierarchical Panel VAR with an exogenous block. This model is more flexible and less restrictive than a stylized DSGE model. We quantify the strong expansionary effect of these price shocks, and we discuss the connection with i) monetary and macro-prudential policy, ii) the financial sector and iii) the real economy. Furthermore, we observe some degree of heterogeneity across countries both in amplification and propagation patterns.
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  • DT N° 2018-011: The Valuation Channel of External Adjustment in Small Open Economies
    • Author: Juan Carlos Aquino
    • Language: English
    • Date: December 2018
    • Abstract: A common problem in international finance consists of the indeterminacy of the equilibrium asset portfolio in small open economy models. This paper develops a simple approach to compute this portfolio under the assumption of incomplete financial markets. The procedure involves the limiting allocation of a class of two-country world economies where the relative size of one of them tends to zero. Such approach allows to identify the effect of portfolio decisions on the dynamics of the net foreign asset position of a small open economy in a structural fashion. As an illustration, an approximated closed-form solution is obtained for a highly stylized model that is isomorphic to the class of Dynamic Stochastic General Equilibrium (DSGE) models typically used in the literature. JEL Classification: F32. Keywords: net foreign assets, endogenous portfolios, small open economies, DSGE models.
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  • DT N° 2018-010: Nowcasting Peruvian GDP using Leading Indicators and Bayesian Variable Selection
    • Author: Fernando Pérez
    • Language: English
    • Date: December 2018
    • Abstract: There exists a large set of leading indicators that are directly related with GDP growth. However, it is often very difficult to select which of these indicators can be used in order to choose the best shortterm forecasting (nowcasting) model. In addition, it may be the case that more than one model can do this job accurately. Therefore, it would be convenient to average these potentially non-nested models. Following Scott and Varian (2015), we estimate a Structural State Space model through Gibbs Sampling and a spike-slab prior in order to perform the Stochastic Search Variable Selection (SSVS) method. Posterior simulations can be used to then compute the inclusion probability of each variable for the whole set of models considered. In-sample GDP estimates are very precise, taking into account the large set of regressors considered for the estimation. Data comes from the BCRPs database plus other additional sources.
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  • DT N° 2018-009: Assessing the impact of credit de-dollarization measures in Peru
    • Authors: Alex Contreras, Rocío Gondo, Fernando Pérez y Erick Oré
    • Language: English
    • Date: December 2018
    • Abstract: This paper assesses the impact of de-dollarization measures implemented by the Central Reserve Bank of Peru between the years 2013 and 2016. Our results show that, despite an already slight downward trend in credit dollarization indicators before their implementation, the pace of de-dollarization increased after the adoption of the mentioned policy measures, especially after the announcement in the beginning of 2015. In contrast to a generalized impact of measures in 2015 onwards on all market segments, de-dollarization measures in 2013 affected mainly certain segments by firm size such as corporate and small firms. In addition, an heterogeneous impact is identified by loan size, where banks prefered to substitute larger loans from foreign to domestic currency.
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  • DT N° 2018-008: Credit Booms in Commodity Exporters
    • Author: Miguel Saldarriaga
    • Language: English
    • Date: December 2018
    • Abstract: This paper identifies 101 credit boom episodes, i.e. periods of exceptional credit growth, in a sample of 115 countries for 1960-2014, and compares the results for commodity exporters and non-commodity exporters. I find that there is no difference in the number and duration of credit booms between commodity exporters and non-commodity exporters, but around two thirds of credit booms in the last four decades in commodity exporters have been associated with high commodity prices. In addition, I find that business cycles dynamics are more exacerbated during a credit boom episode in commodity exporters than in non-commodity exporters, and domestic demand variables tend to end below the trend after the peak of a credit boom. A frequency analysis shows that commodity exporters have a higher likelihood of having credit booms ending in a banking crisis and this result is confirmed by a regression analysis. However, commodity exporters do not have a higher incidence of having a credit boom, and net capital inflows and credit growth remain as the main predictors of these episodes.
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  • DT N° 2018-007: Monetary and Fiscal History of Peru 1960-2010: Radical Policy Experiments, Inflation and Stabilization
    • Authors: César Martinelli and Marco Vega
    • Language: English
    • Date: November 2018
    • Abstract: We show Peru's experience of chronic inflation through the 1970s and 1980s resulted from inflationary taxation in a regime of fiscal dominance of monetary policy. Hyperinflation occurred when further debt accumulation became unavailable, and a populist administration engaged in a counterproductive policy of price controls and loose credit. We interpret the fiscal difficulties preceding the stabilization as a process of social learning to live within the realities of fiscal budget balance. The credibility of policy regime change in the 1990s may be linked ultimately to the change in public opinion giving proper incentives to politicians, after the traumatic consequences of the hyper stagflation of 1987-1990.
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  • DT N° 2018-006: Real Estate Price Index: An Hedonic Approach
    • Authors: Fernando Mundaca and Elmer Sánchez León
    • Language: Spanish
    • Date: November 2018
    • Abstract: The objective of the document is to estimate a price index of departments for Metropolitan Lima using the hedonic price methodology. For this purpose, three variants of the methodology are used (time binary variables method, characteristics method and the imputation method). The indices calculated by these three methods present similar results. It also shows that there has not been a great variation in the characteristics of the departments or the valuations of these characteristics. The characteristics with the highest valuation of the buyers are the number of garages and the number of bathrooms. Finally, similarity is found in the indices calculated based on hedonic regressions and the median index calculated and published by the BCRP.
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  • DT N° 2018-005: Competitive Environment and Financial Stability in the Peruvian Microfinance System
    • Authors: Katia Huayta, Antonella Garcia and Narda Sotomayor
    • Language: English
    • Date: November 2018
    • Abstract: This paper examines the relationship between competition and financial stability for Peruvian microfinance institutions, during the 2002-2016 period. Using the Panzar and Rosse H-statistic as well as the Boone indicator for the evaluation of competition, and the Roy Z-score as a proxy for financial stability, we find a non-linear relationship (inverted U-shaped) between competition and financial stability, which validates the Martínez-Miera and Repullo approach. Furthermore, we find that competition in the Peruvian microfinance system might increase even when market concentration increases; and, according to the H-statistic, the market structure that best fits this system is monopolistic competition.
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  • DT N° 2018-004: Measuring the Stance of Monetary Policy in a Time-Varying World
    • Author: Fernando Pérez Forero
    • Language: English
    • Date: April 2018
    • Abstract: Knowing the stance of monetary policy is a general theme of interest for academics, policy makers and private sector agents. The mentioned stance is not necessarily observable, since the Fed have used different monetary instruments at different points in time. This paper provides a measure of this stance for the last forty five years, which is a weighted average of a pool of instruments. We extend Bernanke and Mihov (1998)'s Interbank Market model by allowing structural parameters and shock variances to change over time. In particular, we follow the recent work of Canova and Perez Forero (2015) for estimating non-recursive TVCVARs with Bayesian Methods. The estimated stance measure describes how tight/loose was monetary policy over time and takes into account the uncertainty related with posterior estimates of time varying parameters. Finally, we present how has monetary transmission mechanism changed over time, focusing our attention in the period after the Great Recession.
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  • DT N° 2018-003: Anchoring of Inflation Expectations in Latin America
    • Authors: Rocío Gondo and James Yetman
    • Language: English
    • Date: April 2018
    • Abstract: We use inflation survey data from Consensus Economics to assess the degree of inflation expectations anchoring in Latin America. Following the methodology proposed by Mehrotra and Yetman (2017), we model inflation forecasts using a decay function, where forecasts monotonically diverge from an estimated anchor towards recent actual inflation as the forecast horizon shortens. Our results suggest that most countries do have an inflation anchor, with the estimated weight of the anchor increasing through time, indicating more strongly anchored expectations. This is consistent with the improving credibility of central banks’ monetary policy management over our sample period (1993-2016). For countries with formal inflation targets, our results indicate that inflation targeting regimes are generally credible, with estimated anchors lying within the inflation target range for all countries in the most recent sample that we consider.
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  • DT N° 2018-002: Monetary policy spillovers, global commodity prices and cooperation
    • Authors: Andrew Filardo, Marco Lombardi, Carlos Montoro y Massimo Ferrari
    • Language: English
    • Date: February 2018
    • Abstract: How do monetary policy spillovers complicate the trade-offs faced by central banks face when responding to commodity prices? This question takes on particular relevance when monetary authorities find it difficult to accurately diagnose the drivers of commodity prices. If monetary authorities misdiagnose commodity price swings as being driven primarily by external supply shocks when they are in fact driven by global demand shocks, this conventional wisdom – to look through the first-round effects of commodity price fluctuations – may no longer be sound policy advice.
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  • DT N° 2018-001: Monetary policy operating procedures, lending frictions, and employment
    • Authors: David Florian, Chris Limmios and Carl Walsh
    • Language: English
    • Date: February 2018
    • Abstract: This paper studies a channel system for implementing monetary policy when bank lending is subject to frictions. These frictions affect the spread between the interbank rate and the loan rate. We show how the width of the channel, the nature of random payment flows in the interbank market and the presence of frictions in the loan market affect the propagation of financial shocks that originate either in the interbank market or in the loan market. We study the transmission mechanism of two different financial shocks: 1) An increase in the volatility of the payment shock that banks face once the interbank market has closed and 2) An exogenous termination of loan contracts that directly affects the probability of continuation of credit relationships. Both financial shocks are propagated through the interaction of the marginal value of having excess reserves as collateral relative to other bank assets, the real marginal cost of labor for all active firms and the reservation productivity that selects the mass of producing firms. Our results suggest that financial shocks produce a reallocation of bank assets towards excess reserves as well as intensive and extensive margin effects over employment. The aggregation of those effects produce deep and prolonged recessions that are associated to fluctuations in the endogenous component of total factor productivity that appears as an additional input in the aggregate production function of the economy. We show that this wedge depends on aggregate credit conditions and on the mass of producing firms.
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2017

  • DT N° 2017-13: Unit roots in real primary commodity prices? A meta-analysis of the Grilli and Yang data set
    • Authors: Diego Winkelried
    • Language: English
    • Date: December 2017
    • Abstract: The long-run behavior of real primary commodity prices, especially whether these series are trend stationary or contain a unit root, has been a topic of major debate in applied economics. In this paper, we perform a meta-analysis and combine the evidence of twelve representative studies on the subject, published in the last 25 years, in order to reach a unified conclusion about the presence of unit roots in these prices. The studies use different testing procedures, but share the common null hypothesis of a difference stationary process. Also, they use the individual price indices from the Grilli and Yang data set, arguably one the most popular source of long-term commodity price data. The combined evidence against unit roots in real primary commodity prices is strong: out of 24 cases, the unit root cannot be rejected in at most four. This implies that real primary commodity prices tend to be mean reverting and thus, to some degree, forecastable.
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  • DT N° 2017-12: Global spillovers and coordination of monetary and macroprudential policies in the Pacific Alliance economies
    • Authors: Zenon Quispe, Donita Rodriguez, Hiroshi Toma and Cesar Vasquez
    • Language: English
    • Date: December 2017
    • Abstract: In recent times the Pacific Alliance member economies (Chile, Colombia, Mexico and Peru) have managed to achieve trade integration, have made an important progress in their financial integration and have withstood the spillovers from the global shocks that had risen from abroad. But, would the Pacific Alliance members be better off if they coordinated their monetary and macro prudential policy responses when facing the spillovers from these external global shocks? To test this we propose a framework based on the Global Projection Model (GPM) of the International Monetary Fund (IMF), which features real and financial linkages between countries. We introduce additional equations for terms of trade, commodities, portfolio inflows, foreign direct investment inflows, lending, lending interest rates and macro prudential policy with the objective of having a more comprehensive model. In the no-coordination case, we consider six countries: the four member economies of the Pacific Alliance acting separately, China and USA. The coordination case involves three parties: the Pacific Alliance acting as one country, China and USA. In this case of full coordination among Pacific Alliance countries, the members act as if they followed the same monetary and macroprudential policies. We find that upon global shocks spillovers coming from China and the United States, the Pacific Alliance member economies are mostly better off when coordinating monetary and macro prudential policy responses than when not.
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  • DT N° 2017-11: The value of teachers: an analysis of the effect of teacher knowledge on the performance of students in Peru
    • Authors: Diego Camacho and Naara Cancino
    • Language: Spanish
    • Date: December 2017
    • Abstract: This research evaluates the impact of teacher performance on the learning achievements of Peruvian students. For that purpose, we constructed a measure of teacher knowledge that includes components of subject matter knowledge and pedagogical knowledge. We apply a value added approach using longitudinal data from the 2013 Sample students Evaluation (EM 2013), which measures the learning achievements in mathematics of 6th grade children and also the knowledge of their math teachers, and the 2009 Census students Evaluation (ECE 2009), where the same students were evaluated in mathematics when they were in the 2nd grade of primary school. We find that teacher knowledge has a positive causal effect on the learning achievements of Peruvian children. This effect is heterogeneous since it is greater in children with high accumulated capacity and in children who have more educational inputs (resources) at home; that is, there is evidence of complementarity of inputs and thus educational gaps already existing in Peru (between the richest and the poorest) can be further expanded.
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  • DT N° 2017-10: The Effects of Trade Creation and Trade Diversion under the Free Trade Agreement between Peru and the United States: A Gravitational Analysis
    • Authors: Gabriel Arrieta
    • Language: Spanish
    • Date: December 2017
    • Abstract: This paper is oriented to study the effects of trade creation and trade diversion produced by the Free Trade Agreement (FTA) between Peru and the United States, using 10-digit disaggregated commodity data between 1995 and 2015. For that purpose, this paper takes Carrere (2006), MacPhee and Sattayanuwat (2014), and Yang and Martinez (2013) methodologies that use three dummy variables in order to quantify these effects. The estimation method used is called Pseudo-Poisson Maximum Likelihood (PPML), introduced by Santos Silva and Tenreyro (2006). In addition, differentiations between types of goods and staging categories are made. The main results show that the FTA generates the largest effect in intra-bloc trade creation and import trade creation for consumption goods. While for the staging category A, also called immediate access, the analysis shows that it generated the largest effect of import trade diversion, and the staging category C (10-year tariff reduction) produced the largest effect of extra-bloc trade creation (throughout the export increase from countries within the bloc to the rest of the world).
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  • DT N° 2017-09: The demand for credit at the individual level: The credit registry meets the national household survey
    • Authors: Nikita Céspedes Reynaga
    • Language: Spanish
    • Date: September 2017
    • Abstract: This document examines the demand for credit at the individual level in Peru. It uses a unique database resulting from the merge of the administrative credit registry (RCC) and the National Household Survey (ENAHO). The data allows to ideally identifying the amount of credit and the interest rate as well as the characteristics of each credit granted in the Peruvian banking system. It also includes indicators of the supply of each credit, which is key for the identification of demand. The elasticity of the demand for credit relative to the interest rate is estimated using a two-step procedure proposed by Heckman (1979) and is approximately -0,29. This value means that a rise in the market interest rate by 1%.implies a reduction in the demand for credit by 0,29%. This elasticity is slightly lower than the one provided by the international evidence and is highly heterogeneous throughout credit types and features of individual debtors.
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  • DT N° 2017-08: Heterogeneous credit dollarization at the individual level
    • Authors: Nikita Céspedes Reynaga
    • Language: Spanish
    • Date: September 2017
    • Abstract: This paper examines the heterogeneity of credit dollarization at people level in Peru. Credit dollarization is characterized by a unique database resulting from the merge between administrative records of credits and the National Household Survey. This database allows the identification of the amount of credit as well as the features of each credit and the individual level. The paper finds that dollarization is heterogeneous according to debtor features; it is higher among high-income, old and more educated people. At the regional level, Lima has the highest dollarization ratios.
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  • DT N° 2017-07: Market Conditions and Quality as Determinants of Exchange Rate Passthrough: Microdata evidence
    • Authors: Renzo Castellares
    • Language: Spanish
    • Date: June 2017
    • Abstract: This paper estimates the exchange-rate pass-through to prices with data from the used-car market. We use weekly advertisements of car sales appearing in El Comercio newspaper between 2014 and 2016. We find, controlling for invariant features of cars and sellers, that car prices increase 0,7 per cent when the exchange rate rise one percent. Also, we find evidence of a lower pass-through when both; market tightness and the quality of cars are high. Last, we find evidence of pass-through asymmetry conditional also on market tightness and car quality.
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  • DT N° 2017-06: The Dynamics of Investment Projects: Evidence from Peru
    • Authors: Marco Vega and Rocío Gondo
    • Language: English
    • Date: June 2017
    • Abstract: We analyse the effect of commodity price cycles on firm investment decisions at the project level, by considering the decision to delay, cancel or complete a project as initially announced. In particular, we use logit and duration models of competing risks on a novel dataset of announced investment projects in Peru from different economic sectors. The empirical framework for the timing of investment is motivated by real option models for projects that take time to build, with commodity prices used as a proxy of expected future income and their volatility as a proxy for uncertainty. Our results suggest that both a reduction in commodity prices and an increase in volatility increase the probability to delay investment in the mining sector, with an amplification effect when both simultaneously occur. In other sectors, delays in implementation occur more often in periods of high volatility. Probability regressions under a competing risk framework suggest that higher commodity prices lead to a higher probability of completion in all sectors of the economy.
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  • DT N° 2017-05: Determinants of Social Conflicts in Mining Sites
    • Authors: Renzo Castellares and Morgane Fouché
    • Language: Spanish
    • Date: June 2017
    • Abstract: This paper assesses the determinants of social conflicts in Peruvian mining sites. We use information at the district level regarding social conflicts and mining firms for the period between 2008 and 2017 We find that socio-demographic as well as economic factors - not previously used in the literature – relevant to districts and firms, significantly affect the probability of socio-environmental conflicts. Different from previous work, an increase in international prices affects each mine does not have significant effects in the occurrence probability of conflicts in the host districts.
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  • DT N° 2017-04: Propagation of Reserve Requirement Shocks to the Peruvian Banking System
    • Authors: Marco Vega and Joselin Chávez
    • Language: Spanish
    • Date: June 2017
    • Abstract: We identify how reserve requirement shocks for domestic currency deposits affects the stock of lending of Banks at the aggregate and individual level. An expansionary reserve requirement shock has positive effects on aggregate credit granted in both domestic and foreign currency. These positive effects are also mildly observed in prices and output. In general, at the individual level, the effects in credit levels in both currencies follows the aggregate pattern but there is heterogeneity in the responses. In particular, the effect of a reserve requirement shock is stronger and quicker in small banks than in large banks.
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  • DT N° 2017-03: Monetary Aggregates and Monetary Policy in Peru
    • Authors: Erick Lahura
    • Language: English
    • Date: June 2017
    • Abstract: This paper investigates empirically the usefulness of monetary aggregates as information variables in the conduct of monetary policy. For this purpose, some recent advances on the topic were used, which include the analysis of both real-time and revised final data, and the application of Bayesian model averaging to allow for model uncertainty regarding the lag length and number of cointegrating relationships. In this paper, money is considered as an information variable for Wt (e.g. output or prices) if the following two criteria are satisfied: (i) Mt is strongly exogenous, and (ii) Mt Granger-causes Wt. Strong exogeneity is relevant because it validates conditional forecasting of Wt using monetary aggregates as conditioning variables. The results show no strong evidence supporting the usefulness of monetary aggregates as information variables for prices or output. However, this does not preclude their potential use as information variables for other macroeconomic targets such as financial stability. It is worth mentioning that the results do not imply that monetary policy in Peru is not useful.
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  • DT N° 2017-02: Macroprudential Policies in Peru: The effects of Dynamics Provisioning and Conditional Reserve Requirements
    • Authors: Miguel Cabello, José Lupú and Elías Minaya
    • Language: English
    • Date: February 2017
    • Abstract: In the last decade, the banking credit has grown significantly in Peru, a partial dollarized economy. That imposed some challenges to the financial regulators to mitigate the risks derived from both excessive economic growth and currency mismatches of banks debtors. This document assesses the effectiveness of two macroprudential measures implemented by the financial regulators: dynamic provisioning and conditional reserve requirements. By using a credit register data, there is evidence that dynamic provisioning has a dampening impact on commercial credit growth. Moreover, mortgage dollarization has declined more rapidly after the implementation of the Conditional Reserve Requirement scheme, but there is no clear evidence about its impact on banks assets quality. In the case of dynamic provisioning, its effect over non-performing loans is asymmetric.
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  • DT N° 2017-01: A Leading Indicator for the Peruvian Economic Real Activity
    • Authors: Fernando J. Pérez Forero, Omar J. Ghurra Aguilar y Rodrigo F. Grandez Vargas
    • Language: Spanish
    • Date: January 2017
    • Abstract: Given the lag in the publication of monthly GDP results , it is important to have economic real activity leading indicators that allow us to learn more about the current state of the economy. The latter is very useful for policy decision making. For that reason, in this paper we build a leading indicator for the Peruvian economy following Aruoba et al. (2009). The indicator is extracted as the latent common component among six macroeconomic variables, i.e. electricity, cement consumption, taxes, chicken sales, mining production and monthly GDP. The main advantage of this indicator is the fact that it allows us nowcast the current GDP growth with a lag of only one week. Our results show an 85 percent correlation of the leading indicator with actual GDP growth.
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2016

  • DT N° 2016-17: Labor supply in Peru
    • Authors: Debora Reyna and Nikita Céspedes
    • Language: Spanish
    • Date: December 2016
    • Abstract: This paper estimates the intensive labor supply elasticity in Peru for the 2004-2012 period. During this period the hours worked, as well as the productivity, have followed a decreasing trend while the hourly wage has shown an increasing trend. The labor supply elasticity is around 0.257, and it is heterogeneous according to the workers age, income and educational level. This parameter is also decreasing in the period of analysis, evidence that suggests that changes in the elasticity of labor supply would explain the dynamics of wages in a context of rising productivity.
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  • DT N° 2016-16: Measuring earned income tax gap in Peru: evidence from the National Household Survey
    • Author: Erick Lahura
    • Language: Spanish
    • Date: December 2016
    • Abstract: Earned income tax gap is estimated for the period 2009-2015. Potential income is obtained from the income reported in the National Household Survey (ENAHO), and is compared with the actual tax collection reported by the National Superintendence of Customs and Tax Administration (Sunat). The results show a decreasing trend in earned income tax gap. However, robustness analysis suggests the tax gap might be underestimated.
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  • DT N° 2016-15: Peruvian households’ access to financial services
    • Authors: Augusta Alfageme y Nelson R. Ramírez Rondán
    • Language: Spanish
    • Date: December 2016
    • Abstract: A solid financial system is beneficial to growth of countries; by enabling households to have financial instruments and to develop their financial capacities, those allow a greater economic welfare and encourage the development of financial markets, contributing to the reduction of poverty and inequality. In this sense, this paper proposes a methodology that helps to know the evolution of access to financial services using the National Household Survey on Living and Poverty (ENAHO) conducted by the National Institute of Statistics and Informatics of Peru between 2004 and 2014. Then, also with the ENAHO database, we analyze the determinants of access to financial services; we find a positive relationship between income, education, and age with the level of access to financial services, and a negative relationship between those living in rural areas and in extreme poverty.
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  • DT N° 2016-14: How much is too much? The fiscal space in emerging market economies
    • Authors: Gustavo Ganiko, Karl Melgarejo and Carlos Montoro
    • Language: English
    • Date: December 2016
    • Abstract: How much fiscal space do emerging market economies have to maintain expansive fiscal policies? This is a key question given the observed increase in public debt since 2007. To answer this question we estimate a debt limit for emerging market economies, from which the public debt to GDP ratio would have an explosive trajectory, in the spirit of Ghosh, Kim, Mendoza, Ostry and Qureshi (2013). For this, we estimate the determinants of the public debt ratio dynamics, the primary balance and the effective cost of debt, for 26 emerging market economies during the 2000-2015 period. We propose an alternative measure, the stochastic debt limit, which takes into account the uncertainty and sensitivity of the debt limit to macroeconomic and financial conditions. The main results are: i) There is evidence of “fiscal fatigue”, namely the loss of control of the debt growth via fiscal adjustments as the debt ratio increases; ii) the debt ratio is an important determinant of the effective cost of public debt; and iii) the debt limit as traditional measured (deterministic) is between 68-97 percentage points of GDP, and between 5-89 percentage points for the stochastic case, which gives evidence of limited fiscal space for the majority of the economies analyzed.
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  • DT N° 2016-13: Cyclical Fluctuations, Co-movement and the Role of External Shocks in Latin America
    • Author: Fernando J. Pérez Forero
    • Language: English
    • Date: December 2016
    • Abstract: This paper compares the business cycles across five Latin American economies (Brazil, Chile, Colombia, Mexico and Peru) for the period 1997-2014. We estimate a Multi-Country VAR through Bayesian Methods, where the model takes into account dynamic interdependencies and time-varying parameters (Canova and Ciccarelli, 2009). We present regional and country-specific indicators of real economic activity. We find a significant common regional component, as well as significant country specific indicators, meaning that there exists some synchronization across business cycles, but at the same time there is some heterogeneity across these economies. We find some heterogeneity before the international financial crisis of 2008 and a more significant co-movent after that date. Furthermore, we explore the transmission at different dates of domestic (country specific) and external shocks such as Chinese GDP growth. Overall, we find that the transmission of both domestic and external shocks are somewhat stable after the Inflation Targeting adoption.
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  • DT N° 2016-12: The dynamic response of the Current Account to Commodity Prices shocks in Mining and Non-mining exporting economies
    • Authors: Fernando J. Pérez Forero and Sergio Serván
    • Language: English
    • Date: December 2016
    • Abstract: The boom and bust of Commodity Prices have had a significant macroeconomic impact on commodity-exporter economies. This paper assesses the dynamic impact of Commodity Prices on the Current Account surplus for several commodity-exporter economies. Because these economies share several economic features, and since they are subject to the same external shocks, it is necessary to estimate their behavior simultaneously. Moreover, the impact of these shocks might be different along the sample of analysis. Thus, we estimate a Panel VAR model with dynamic inter-dependencies and time varying parameters. Within this framework, we have computed an average current account indicator and studied the responses of individual current account balances to shocks in fuel and metal prices. We have found that our common indicator for the current account follows closely the dynamic pattern of the commodity price index i.e. surpluses (deficit) are usually associated with increases (decreases) in commodity prices, and this indicator is statistically significant across the sample of analysis. At the country level, by comparing the impulse response functions, we found that commodity price shocks have a similar effect across countries, although their magnitude differ. In general, our results suggest that the impact on the current account balances have increased since 2002. In the case of a fuel shock, we do not found significant current account responses. However, the evidence for a metal shock is more robust, with higher responses in the case of the metal-exporting countries.
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  • DT N° 2016-11: Financial System, Informality, and Tax Evasion in Peru
    • Author: Erick Lahura
    • Language: Spanish
    • Date: December 2016
    • Abstract: According to the Peruvian National Institute of Statistics and Informatics (INEI), a productive unit is considered informal if it is not registered with the tax administration. This research identifies those informal units that have been granted at least one credit in the financial system, classifies them by financial institution and type of credit, and estimates the corresponding amount of evaded taxes. For this purpose, data from the tax administration and the financial system were analysed. The main finding is that, as of December 2014, there were approximately 1.8 million informal units (about 19% of the total number of debtors in the financial system as a whole) who had been granted at least one credit in the financial system. This provides powerful evidence that there is a significant margin to broaden the tax base. It was also found that the Rural Banks (Cajas Rurales), Small and Micro Enterprise Development Companies (Edpymes), and Finance Companies registered the highest rates of informality, both in terms of the number of customers and credit balances. In addition, the loans obtained by informal units were granted mainly by Finance Companies, Municipal Savings and Loan Banks, and Banks. These results suggest that it would be prudent to monitor and quantify the potential risks to financial stability that might emerge from the presence of informality in the financial system. Finally, the amount of evaded taxes in 2014 by the identified informal units was approximately 0.7% of GDP.
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  • DT N° 2016-10: Measuring the effect of tax changes on economic activity in Peru
    • Author: Erick Lahura y Giovana Castillo
    • Language: Spanish
    • Date: October 2016
    • Abstract: This paper quantifies the effect of tax changes on economic activity in Peru. Following the seminal work by Romer and Romer (2010), we use narrative records related to legislated tax changes that took place during the last 25 years in order to identify exogenous tax changes. The results show that tax increases (cuts) have a negative (positive) effect on real GDP: on impact, the elasticity of real GDP with respect to tax revenue (as a percentage of nominal GDP) is approximately -0.11, whereas the maximum elasticity is -0.22 after six quarters. After a tax increase (cut) of 1 percent of nominal GDP, tax revenue (as a percentage of nominal GDP) decreases (increases) by 0.28 percentage points on impact and reaches a maximum negative (positive) effect of 0.49 percentage points after 7 quarters. Thus, while a tax cut may have a positive effect on economic activity, the resulting increase in tax revenue does not compensate the initial tax cut.
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  • DT N° 2016-09: Mortgage Credit: Lending and Borrowing Constraints in a DSGE Framework
    • Author: Elmer Sánchez
    • Language: English
    • Date: October 2016
    • Abstract: This paper develops a Dynamic Stochastic General Equilibrium (DSGE) framework to evaluate the relative importance of the easing of lending and borrowing constraints in mortgage credit markets for business cycle fluctuations in small open emerging economies. Credit markets are characterized by partial dollarization and are subject to demand shocks, innovations to stochastic loan-to-value ratios (borrowing constraints) imposed on borrowers, and supply shocks, innovations to stochastic bank capital-to-asset ratios (lending constraints) imposed on financial intermediaries. In addition, the model features a set of real and nominal domestic shocks to demand, productivity, and fiscal and monetary policy, as well as foreign shocks. The model is calibrated and estimated using data on the Peruvian economy. A historical decomposition conducted on household leverage ratios reveals that these variables’ cyclical dynamics were mainly driven by borrowing constraint shocks or credit demand shifts, while lending constraint shocks played a residual role. Counterfactual simulations also provide evidence in favor of this channel: turning ff the borrowing constraint shocks significantly attenuates the fluctuations of leverage ratios from their steady-state levels. The importance of the demand channel in Peru is consistent with mortgage demand-boosting public programs enacted in the 2000s. While applied in the Peruvian context here, the framework is easily adaptable to the historical evolution of credit markets in a large variety of emerging market economies.
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  • DT N° 2016-08: Foreign exchange intervention and monetary policy design: a market microstructure analysis
    • Author: Carlos Montoro and Marco Ortiz
    • Language: English
    • Date: September 2016
    • Abstract: In this paper we extend a new Keynesian open economy model to include risk-averse FX dealers and FX intervention by the monetary authority. These ingredients generate deviations from the uncovered interest parity (UIP) condition. More precisely, in this setup portfolio decisions of the dealers add endogenously a time variant risk-premium element to the traditional UIP that depends on FX intervention by the central bank and FX orders by foreign investors. We analyse the effectiveness of different strategies of FX intervention (e.g.,unanticipated operations or via a preannounced rule) to affect the volatility of the exchange rate and the transmission mechanism of the interest rate. Our findings are as follows: (i) FX intervention has a strong interaction with monetary policy in general equilibrium; (ii) FX intervention rules can have stronger stabilisation power than discretion in response to shocks because they exploit the expectations channel; and (iii) there are some trade-offs in the use of FX intervention, since it can help to isolate the economy from external financial shocks, but it prevents some necessary adjustments on the exchange rate as a response to nominal and real external shocks.
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  • DT N° 2016-07: Unemployment and Gross Credit Flows in a New Keynesian Framework
    • Author: David Florian Hoyle and Johanna L. Francis
    • Language: English
    • Date: September 2016
    • Abstract: The Great Recession of 2008-09 was characterized by high and prolonged unemployment and lack of bank lending. The recession was preceded by a housing crisis that quickly spread to the banking and broader financial sectors. In this paper, we attempt to account for the depth and persistence of unemployment during and after the crisis by considering the relationship between credit and firm hiring explicitly. We develop a New Keynesian model with nominal rigidities in wages and prices augmented by a banking sector characterized by search and matching frictions with endogenous credit destruction. In the model, financial shocks are propagated and amplified through significant variation over the business cycle in the endogenous component of the total factor productivity, the credit inefficiency gap, arising from the existence of search and matching frictions in the credit market. In response to a financial shock, the model economy produces large and persistent increases in credit destruction, declines in credit creation, and overall declines in excess reallocation among banks and firms. The tightening of the credit market results in a sharp rise in the average interest rate spread and the average loan rate. Due to the increase in credit inefficiency that arises from the reduction in firm-bank matches, total factor productivity declines and unemployment increases. Total factor productivity and unemployment take at least 12 quarters to return to baseline. This result is due to a combination of nominal and real frictions. Credit frictions not only amplify the effect of financial shocks by creating variation in the number of firms able to produce due to credit restrictions following a shock - an extensive margin effect - as well as in labor demand by each firm, but they also increase the persistence of the shock's effects. Nominal rigidities play an important role primarily increasing the amplitude of the responses of credit and output variables. These findings suggest that credit frictions are a plausible amplification mechanism for the impact of financial shocks and also provide a means for such shocks to impact the labor market in a number of important ways.
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  • DT N° 2016-06: Contribution of external shocks to economic growth in Peru: A semi-structural model
    • Author: José Luis Nolazco, Patricia Lengua-Lafosse and Nikita Céspedes
    • Language: Spanish
    • Date: September 2016
    • Abstract: This paper studies the contribution of the external sector to the Peruvian economic growth in the period 1996-2005. A semi-structural model, similar to those developed in Berg & others (2006), Salas (2011), Adler & Sosa (2012) and Han (2014) is used. In the model, external shocks are endogenously propagated to the growth of a small, open and partially dollarized economy through real (trade and terms of trade) and financial (volatility and the exchange rate) channels. Results show that the joint effect of external shocks faced by the Peruvian economy are heterogeneous through time and through the type of shock: In the 2005-2008 and 2010-2013 periods, external shocks explain up to 36% and 28% of observed GDP growth respectively. Also, during 2009, in the absence of the global economic crisis, GDP would have grown by 4,2 percentage points more. (observed growth was 1,1%)
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  • DT N° 2016-05: Schooling performance in Peru: Sequential analysis of the results of the census student assessment
    • Author: Roger Asencios
    • Language: Spanish
    • Date: September 2016
    • Abstract: This paper seeks to measure empirically the effect of supply and demand variables on performance in the Census Student Assessment (ECE). To this end, it used for the first time a database that includes both the socioeconomic conditions in which students live, as well as information about the school they study.
      It has been estimated a production model of educational attainment and sequential model to explain the passage between the levels of the ECE. The latter model distinguishes the heterogeneous effect that certain variables on educational performance. It is that some inputs are important to explain the performance in math test, but they are not to the same extent, to explain the performance in reading test. Moreover, some variables may be important to get a basic level in the ECE, but are not significant to explain the probability of reaching the highest level. For example, for the math test the mother's education has a significant and positive effect on the probability of moving to the second level on the ECE. However, it is not significant, and even has a negative sign to account for the highest level.
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  • DT N° 2016-04: Computing the relative price divergence as a measure of inflation pressure in Peru
    • Author: María Gracia Ramos and Diego Winkelried
    • Language: Spanish
    • Date: September 2016
    • Abstract: This papers aims at analyzing the price divergence in Peru by using a non-linear model with time-varying coefficients (see Phillips and Sul, 2007) and identifying common trends in prices among some groupings in the basic consumer’s basket, as well as in-side the main CPI components. A significant price divergence with persistent upward trends in the most important core inflation items could signal the existence of real relative demand and supply shocks.
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  • DT N° 2016-03: From the “Great Inflation” to the “Great Moderation” in Peru: A Time Varying Structural Vector Autoregressions Analysis
    • Authors: Paul Castillo, Jimena Montoya y Ricardo Quineche
    • Language: English
    • Date: April 2016
    • Abstract: Over the last 30 years, the Peruvian economy has shown a dramatic decrease in the volatility of its macroeconomic aggregates. Following Primiceri (2005), Benati (2008) and Galí and Gambetti (2009), a Bayesian structural vector autoregression with time-varying parameters and variance covariance matrix of the innovations is used to analyse the underlying causes of Peruvian "Great Moderation". The Peruvian economy is modelled using real GDP growth, inflation and the rate of growth of M1 (money base). Our main results show: (1) Monetary policy has contributed significantly to the "Great Moderation" by reducing the volatility of its non-systematic component and by changing its reaction function to demand and supply shocks; (2) Structural reforms also contributed to reduce the responsiveness of GDP and inflation to demand and supply shocks; (3) During the period of high volatility, supply and policy shocks were the most important determinants of macroeconomic instability.
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  • DT N° 2016-02: De-dollarization of credit in Peru: The role of unconventional monetary policy tools
    • Authors: Paul Castillo, Hugo Vega, Enrique Serrano and Carlos Burga
    • Language: English
    • Date: April 2016
    • Abstract: In this paper we document and empirically evaluate the use of unconventional monetary policy tools in Peru to reduce credit dollarization. Our empirical analysis uses the counter-factual test proposed by Pesaran and Smith (2012) and shows that both high reserve requirements, used counter cyclically since 2010, and the de-dollarization program put in place by the Central Reserve Bank of Peru (BCRP) since 2013 had statistically significant effects on reducing credit dollarization in Peru. The paper also discusses the impact on bank’s balance sheet of the complementary tools created as part of the de-dollarization program to inject domestic currency liquidity.
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  • DT N° 2016-01: Contractual imperfections and the impact of crises on trade: Evidence from industry-Level data
    • Authors: Renzo Castellares and Jorge Salas
    • Language: English
    • Date: April 2016
    • Abstract: We build a simple trade model in which: (i) exporters are paid after delivery of the goods, and (ii) complementarity exists between procyclical contract enforcement at the importing-country level and contractual vulnerability at the industry level. In the model, an adverse aggregate shock in the importing country generates a disproportionate decline in imports in more contractually vulnerable industries.
      Using disaggregated bilateral trade data for more than 100 countries, we find robust support for the model’s predictions. Our empirical approach exploits the variation in the occurrence of recessions and financial crises across countries from 1989 to 2006, and the variation in contractual dependence across manufacturing industries. The estimated amplification effects of contractual dependence on sectoral imports are statistically significant and economically important. Our analysis uses different industry measures of contractual vulnerability, including measures of product complexity and a novel indicator of uncollectible credit sales.
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2015

  • DT N° 2015-19: Monetary policy, financial dollarization and agency costs
    • Author: Marco Vega
    • Language: English
    • Date: December 2015
    • Abstract: This paper models an emerging economy with financial dollarization features within an optimizing, stochastic general equilibrium setup. One key result in this framework is that unexpected nominal exchange rate depreciations are positively correlated with the probability of default by borrower firms and turn out to be a powerful mechanism to affect aggregate consumption.
      Throughout the monetary policy evaluation exercises performed, the sign of the unexpected depreciation is positively correlated to the real value of assets and negatively correlated to aggregate consumption. This result supports the idea that unexpected exchange rate depreciations are contractionary and not expansionary if dollarization and agency costs in the financial sector are considered.
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  • DT N° 2015-18: Transmission of US Monetary Policy Shocks towards Latin America: A GVAR approach
    • Author: Jairo Flores Audante
    • Language: Spanish
    • Date: December 2015
    • Abstract: This paper studies the international spillovers of US monetary policy shocks across Latin American countries through trade linkages. The approach used is a GVAR model that allows to study the interdependence of countries and variables using monthly data from 2003 to 2014. In addition, given that the federal funds rate has been in the zero lower bound since the financial crisis, the paper uses an alternative measure of Fed interest rate built by Wu & Xia (2014) called the “shadow federal funds rate". The paper concludes that a contractionary monetary policy shock in US has the expected impact on domestic US variables and a persistent and negative effect over economic activity and prices in Latin American countries.
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  • DT N° 2015-17: The Cost Channel of Monetary Policy: Evidence from Peru
    • Author: Ángel Fernández Rojas
    • Language: Spanish
    • Date: December 2015
    • Abstract: This paper assesses the importance of cost channel for the Peruvian economy. I estimate the New Keynesian Phillips Curve augmented with cost channel with rolling window technique similar to Tillman (2009a) using generalized method of moments. It shows that the cost channel is important when the interest rate is used as a policy instrument. In addition, the importance of this channel increases in the periods with low volatility of the interbank interest rate. This dynamic is due to time-varying ratio of financial to total costs for firms. Finally, expectations channel reinforces demand channel and exchange rate channel to reduce inflation in response to an increase in monetary policy interest rate.
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  • DT N° 2015-16: Structured bonds valuation
    • Author: Omar Pinedo
    • Language: Spanish
    • Date: December 2015
    • Abstract: A method to price structured bonds is proposed. It includes two key elements: (1) construction of zero coupon curves to discount cash flows and (2) simulation of cash flows for the underlying option. For (1) the study uses the penalized B-Spline method and for (2) it uses a Quasi-Monte Carlo based on a generalized Halton sequence.
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  • DT N° 2015-15: Comparing the Transmission of Monetary Policy Shocks in Latin America: A Hierarchical Panel VAR
    • Author: Fernando J. Pérez Forero
    • Language: English
    • Date: December 2015
    • Abstract: This paper assesses and compares the effects of monetary policy shocks across Latin American countries that put in practice the Inflation Targeting scheme (Brazil, Chile, Colombia, Mexico and Peru). An estimated Hierarchical Panel VAR allows us to use the data efficiently and, at the same time, exploit the heterogeneity across countries. Monetary shocks are identified through an agnostic procedure that imposes zero and sign restrictions. We find a real short run effect of monetary policy on output (with a peak around 12-15 months); a significant medium run response of prices with the absence of the so-called price puzzle and a hump-shaped response of the exchange rate, i.e. weak evidence of the so-called delayed overshooting puzzle phenomenon. Nevertheless, we find some degree of heterogeneity on the impact and propagation of monetary shocks across countries. In particular, we find stronger effects on output and prices in Brazil and Peru relative to Chile, Colombia and Mexico and a stronger reaction of the exchange rate in Brazil, Chile and Colombia relative to Mexico and Peru. Finally, we present a weighted-averaged impulse response after a monetary shock, which is representative for the region.
    • Note: Winning article in the 2015 Rodrigo Gómez Central Bank Award, organized by the Center for Latin American Monetary Studies (CEMLA). The article will be published by this institution..
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  • DT N° 2015-14: Foreign capital and economic growth in emerging markets: are foreign aid and foreign direct investment substitutes?
    • Authors: Micaela Chuquilín, César Salinas y Diego Winkelried
    • Language: English
    • Date: December 2015
    • Abstract: This paper studies the short-rum and long-run effects of foreign aid and foreign direct investment on economic growth in emerging markets. Upon applying the so-called Pooled Mean Group estimator to an unbalanced panel for 94 countries over the period 1960-2012, we find a positive and significant long-run relationship between these two types of foreign capital and growth. We then enquire which type of foreign flow is more effective to stimulate economic growth, and find that both effects are not statistically different in various dynamic specifications and robustness checks. This finding may account for a possible substitutability relationship between foreign aid and foreign direct investment in the long-run. An implication is that what matter for growth in emerging markets is the aggregate amount of foreign capital, rather than its composition.
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  • DT N° 2015-13: Assessing Price Dynamics in the Real Estate Sector: Evidence from Peru
    • Author: Diego Vílchez Neira
    • Language: Spanish
    • Date: December 2015
    • Abstract: This paper uses a two-step procedure to analyze the long-run dynamics between real house prices and their fundamentals in Lima, Peru. In this framework, first a hedonic price index is calculated, and then used for estimating a quarterly vector error correction model over the period 1998-2014. The price determinants considered in this application are: real mortgage interest rate, real gross domestic product, and trading volume. The reduced form of the model is employed for generating alternative price forecasts. In addition, a structural decomposition of the system allows us to identify and give an economic interpretation to the permanent and transitory shocks. Finally, this analysis is also applied to different tranches of the price distribution to assess if the interrelationships in the system vary across them. Results imply that income and trading volume shocks contribute the most at explaining the dynamics in prices. Also, under reasonable assumptions for the modeled fundamentals, predictions suggest that real house prices would undergo an important deceleration during the following years. Some signs of differenced behavior throughout the price distribution in the housing market cannot be ruled out in this analysis.
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  • DT N° 2015-12: Piecewise linear trends and cycles in primary commodity prices
    • Author: Diego Winkelried
    • Language: English
    • Date: December 2015
    • Abstract: We extend the methodology put forward in Yamada and Yoon (2014, Journal of International Money and Finance, 42(C), 193-207) to analyze the trend and cyclical behavior of relative primary commodity prices. These authors propose the use of the so-called l1-filter that renders piecewise linear trends of the underlying data. Our focus is on the calibration of such filter and its implications for the empirical analysis of primary commodity prices, especially the interpretation given to the resulting trend. We also illustrate how suitably calibrated filters may be used to compute piecewise linear (super) cycles, whose turning points are easily to identify.
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  • DT N° 2015-11: Asymmetric exchange rate pass-through: Evidence from Peru
    • Authors: Fernando J. Pérez Forero and Marco Vega
    • Language: English
    • Date: November 2015
    • Abstract: We study the response of prices to exchange rate shocks for the Peruvian economy in a non-linear context. For that purpose we specify a Structural Vector Autorregressive model (SVAR) and compute impulse-responses functions for prices after exchange rate shocks. We follow Hamilton (2010) and Kilian & Vigfusson (2011), who explore the presence of asymmetric effects on USA output after oil prices shocks that either decrease or increase oil prices. In our setup we analyze shocks that either appreciate or depreciate the local currency under censored exchange rate changes. The results exhibit a remarkable asymmetry in the response of consumer prices and wholesale import good prices, both on impact and on propagation. In absolute value, the effect of a depreciation shock on the consumer price index after one year is about twice the size of that corresponding to an appreciation shock. Roughly speaking, the one-year passthrough to prices is 20 percent under depreciations and only 10 percent after appreciations.
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  • DT N° 2015-10: Competition and Quality Upgrading in Export Markets: The case of Peruvian Apparel Exports
    • Author: Renzo Castellares
    • Language: English
    • Date: November 2015
    • Abstract: This paper uses the exponential growth in Chinese exports from 2001 to 2006 to evaluate the effects of a competition shock from a low-wage competitor on exporters from a developing country. In particular, this research considers heterogeneous quality upgrading strategies of Peruvian apparel firms in response to an influx of low-cost Chinese apparel goods. Using firm-level data from Peruvian customs and a survey of Peruvian manufactures, I find that more productive firms upgrade their product quality to differentiate them from low-cost and low-quality Chinese apparel goods. Conversely, less productive Peruvian firms, which are not able to increase their quality, react by reducing their prices. Finally, I also find evidence that the average quality of Peruvian apparel products increase during 2001 to 2007.
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  • DT N° 2015-09: Job Cretaion and Destruction and the Informal Sector
    • Author: Nikita Céspedes Reynaga
    • Language: Spanish
    • Date: November 2015
    • Abstract: This paper analyses the employment creation and destruction rates in Lima Metropolitan Area. This work is relevant because there is no literature about these indicators for developing economies with high levels of informality. We find that these indicators are on average similar to those found for developed economies; however the corresponding values for the informal sector are three times larger than those for the formal sector. There is an important heterogeneity of both series, creation and destruction rates, according to some covariates; additionally, these two variables are related to the business cycle: the destruction rate is countercyclical and the creation rate is procyclical, being this cyclicality larger in the formal sector.
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  • DT N° 2015-08: Calendar Effects in Latin American Stock Markets
    • Authors: Diego Winkelried and Luis Antonio Iberico
    • Language: English
    • Date: November 2015
    • Abstract: One of the most well-documented empirical regularities in international finance is the presence of calendar effects in historical stock returns. The literature focuses mainly on developed countries and in general, emerging markets have not received much attention on this issue. We aim to bridge this gap by documenting the existence of significant and robust calendar effects for the main stock markets in Latin America. Upon performing an extreme bounds analysis that adjusts our estimations for model uncertainty, we find a significantly negative Monday effect, generally compensated by a significantly positive Friday effect. These effects are robust to model specification and are stable through time. Even though not as widespread, we also find evidence for a robust turn-of-the-month effect.
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  • DT N° 2015-07: Unit Roots, Flexible Trends and the Prebisch-Singer Hypothesis
    • Author: Diego Winkelried
    • Language: English
    • Date: November 2015
    • Abstract: This paper studies the dynamic properties of relative commodity prices, especially the Presbisch-Singer hypothesis on the secular decline in these series, using a new family of unit root tests that is based on the Fourier approximation to the underlying trend in the data. The approximation controls for low-frequency variations such as structural breaks, or such as the long swings induced by hypothesized super cycles in the data. Relative to the extant literature, we find considerably more evidence in favor of trend stationarity in relative commodity prices, and relatively limited support for the Prebisch-Singer hypothesis.
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  • DT N° 2015-06: Determinants of the Demand for Cash in Peru: A Non Linear Approach
    • Authors: Juan Ramírez, José Luis Vásquez and Javier Pereda
    • Language: English
    • Date: October 2015
    • Abstract: This paper estimates the main determinants of the demand for cash in Peru from 2002 to 2013. Cash data is analyzed in two levels: considering an aggregate level, where all the notes circulating in the economy are included; and considering the type of denomination. Two sub-groups were defined: lower denomination notes (S/. 10, S/. 20 and S/. 50), and higher denomination notes (S/. 100 and S/. 200). We construct a model of the demand for cash following Adam (2000). For each sub-group, we estimate a non-linear relation with the Markov switching model method (MSM). The MSM estimation shows that the analyzed period has two different regimes. Depending on the sub-group and the regime analyzed, the results differ. The general conclusion is that low denomination notes are highly correlated with transactional variables and in a lower degree with interest rates. Meanwhile, the demand for high denomination notes is positively correlated with the ratio of dollarization and the informal sector of the economy. These results are consistent with the Cash Usage Surveys taken by the Central Bank in 2008 and in 2012.
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  • DT N° 2015-05: To grow is not sufficient to reduce informality
    • Author: Nikita Céspedes
    • Language: Spanish
    • Date: October 2015
    • Abstract: This paper studies the relationship between labor informality and economic growth in Peru at the regional level. The study uses both, the regional urban unemployment rate and electricity consumption as indicators of economic activity in a discrete choice model of informality at the worker level. The results show that the informality-growth elasticity is statistically significant but small, thus, the contribution of an increase in economic activity to reduce informality is also small. It is suggested that economic growth affects informality via net job creation in formal sectors. These jobs are more productive than jobs in the informal sector. Also, formal jobs have higher wage returns than jobs in the informal sector. Though, this latter gap is shrinking since the onset of current decade and so, incentives to formalize jobs are fading.
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  • DT N° 2015-04: An Application of a Short Memory Model with Random Level Shifts to the Volatility of Latin American Stock Market Returns
    • Authors: Gabriel Rodríguez and Roxana Tramontana Tocto
    • Language: English
    • Date: July 2015
    • Abstract: Empirical research indicates that the volatility of stock return time series have long memory. However, it has been demonstrated that short memory processes contaminated with random level shifts can often be confused as being long memory. Often this feature is referred to as spurious long memory. This paper represents an empirical study of the random level shift (RLS) model using the approach of Lu and Perron (2010) and Li and Perron (2013) for the volatility of daily stocks returns data for five Latin American countries. The RLS model consists of the sum of a short term memory component and a level shift component, where the level shift component is governed by a Bernoulli process with a shift probability (alpha). The estimation results suggest that the level shifts in the volatility of daily stocks returns data are infrequent but once they are taken into account, the long memory characteristic and the GARCH e¤ects disappear. An out-of-sample forecasting exercise is also provided.
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  • DT N° 2015-03: Aggregate Inflation Forecast with Bayesian Vector Autoregressive Models
    • Authors: Cesar Carrera and Alan Ledesma
    • Language: English
    • Date: July 2015
    • Abstract: We forecast 18 groups of individual components of the Consumer Price Index (CPI) using a large Bayesian vector autoregressive model (BVAR) and then aggregate those forecasts in order to obtain a headline inflation forecast (bottom-up approach). De Mol et al. (2006) and Banbura et al. (2010) show that BVAR's forecasts can be significantly improved by the appropriate selection of the shrinkage hyperparameter. We follow Banbura et al. (2010)'s strategy of "mixed priors," estimate the shrinkage parameter, and forecast inflation. Our findings suggest that this strategy for modeling outperform the benchmark random walk as well as other strategies for forecasting inflation.
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  • DT N° 2015-02: Income Distribution and Endogenous Dollarisation
    • Authors: Paul Castillo and Carlos Montoro
    • Language: English
    • Date: July 2015
    • Abstract: In this paper we develop a monetary economy model where dollarisation emerges endogenously as an optimal decision of individuals and ?rms in an environment where the exchange rate is uncertain and individuals are heterogenous in their asset holdings and in their consumption baskets. We show that in this environment income distribution plays a key role in explaining the pattern of price dollarisation and its links with asset dollarisation. The model shows that for economies with relatively high income inequality, price dollarisation is not important at the aggregate level, even when asset dollarisation is high. In this case, only luxury goods, those associated to the consumption basket of high-income customers, are endogenously priced in foreign currency, whilst necessity goods, those associated to the consumption basket of low-income customers, are priced in domestic currency. This result may explain why in countries with remarkably high levels of asset dollarisation, countries like Argentina, Bolivia and Peru, the levels of transaction and price dollarisation are relatively low. We also show that asset dollarisation causes price dollarisation and that the relationship depends on income distribution.
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  • DT N° 2015-01: Anatomy of the Cost of Credit in Perú
    • Authors: Marylin Choy, Eduardo Costa and Eloy Churata
    • Language: Spanish
    • Date: May 2015
    • Abstract: Two main features of Peru’s credit market are the high disparities between lending interest rates for different borrowers and the size of interest rate spreads. This paper seeks to explain the behavior of lending interest rates in Peru through the evolution of their cost components (funding and operating costs and credit risk management) in 2010-2014.
      We find that operating costs and the credit default risk are the most relevant factors underlying the level and variability of lending interest rates. An increase in credit risk raises interest rates through higher loan loss reserves and risk management costs. As a result, interest rates increase more for small enterprises, retail and consumption loans (demanded by the riskier market segments).
      Another main finding is that competition plays a key role in the dynamics of lending interest rates, especially for SME and consumption loans (mostly denominated in domestic currency). In particular, the search for improved cost competitiveness has contributed to mitigating the compression of profit margins caused by declining lending interest rates and persistent credit default risks. In contrast, competition has been less intense in the corporate loan market, reflecting a higher concentration in this segment.
      Interest rates for soles loans are considerably higher than for those denominated in dollars. The funding costs associated with higher reserve requirements on foreign-currency obligations are offset by a greater concentration of dollar loans in the less risky borrowers of each market segment.
      Further reductions in lending interest rates will require increased competition in financial markets and substantial improvements in corporate governance, discipline and financial culture.
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2014

  • DT N° 2014-24: The relationship between inflation and growth discrete cycles: Peru 1993 - 2012
    • Author: Carlos R. Barrera Chaupis
    • Language: Spanish
    • Date: December 2014
    • Abstract: This study verifies the hypothesis of a non-linear relationship between inflation and short-run economic growth in Peru with data that covers the period January 1993 - June 2012. The paper uses a family of dichotomic models about the relationship between acceleration and deceleration phases on the dynamics of both inflation and growth. One-equation autoregressive logit models as well as static and autoregressive binary probit models are estimated. Results suggest the existence of a positive stochastic relationship between inflation and growth discrete cycles.
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  • DT N° 2014-23: The effects of metal commodity prices and international stock markets on the Peruvian stock market risk
    • Authors: Mauricio Zevallos, Fernanda Villarreal, Carlos del Carpio and Omar Abbara
    • Language: Spanish
    • Date: December 2014
    • Abstract: The international financial crisis made clear the need to better understand measures of market risk and put doubts on risk management practices based on value-at-risk (VaR) estimates. Adrian and Brunnermeier (2008, 2011) proposed the conditional VaR (CoVaR) as a measure of systemic risk. The CoVaRi/j measures the VaR of an institution i given that the institution j is in financial distress, namely when institution j has return equal to its VaR. Also, to estimate the marginal contribution of institution j on the risk of institution i, Adrian and Brunnermeier (2008, 2011) proposed the CoVaR variation (?CoVaR), which measures the difference between the CoVaR estimated in financial distress and the CoVaR estimated under normal conditions. This paper uses the CoVaR methodology to estimate the Peruvian stock market risk conditional on the state of the international financial system (S&P500) and conditional on the state of the three key commodity prices in Peru: copper, gold and silver. Also, the CoVaR measures are compared to standard VaR measures for the general stock market index to understand the differences between conditional and unconditional measures. Results show that CoVaR and ?CoVaR figures are useful estimates to measure the Peruvian stock market index.
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  • DT N° 2014-22: Stock market development and real economic activity in Peru
    • Authors: Erick Lahura y Marco Vega
    • Language: English
    • Date: December 2014
    • Abstract: We explore the causal effect of stock market development on real economic activity in Peru. Based on the predictions of a simple growth model, we estimate vector autoregressive models and identify stock market shocks by imposing long-run restrictions in the dynamic response of real output per capita. Using annual time series data for the period 1965-2013, we find that stock market shocks have had a short-run causal effect on real GDP per capita only after 1991, a result that is consistent with standard Granger causality tests; however, the contribution of stock market shocks to output growth dynamics have been small. Thus, policy actions aimed at further developing the Peruvian stock market may have a positive impact on the dynamics of economic growth.
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  • DT N° 2014-21: An unfulfilled promise? The quality of higher education and professional underemployment in Peru
    • Authors: Pablo Lavado, Joan J. Martínez and Gustavo Yamada
    • Language: Spanish
    • Date: December 2014
    • Abstract: The aim of this paper is to explore and quantify the extent of how the quality of higher education explains professional underemployment in Peru. Under this condition, four out of ten university graduates in 2012 turn out to be over-qualified, ending up taking non-professional and under-waged vacancies. The paper uses survey data from the National Household Survey (Encuesta Nacional de Hogares - ENAHO) and the National University Census (CENAUM) for the years 1996 and 2010. With this data, the paper estimates a discrete-choice model to measure the effect of university quality on individual long-run underemployment conditions. The source of variation that allows to identify such effects hinges on the institutional liberalization and deregulation process occurred in the higher education market during the 1990s with the passing of the law to promote investment in higher education and the creation of the CONAFU (A national council in charged of allowing prospective universities to start operations). The results indicate that the underemployment probability, for those graduates that attended low-quality universities, increased from 0.19 to 0.30 due to the deregulation process.
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  • DT N° 2014-20: Tracking the Exchange Rate Management in Latin America
    • Author: César Carrera
    • Language: English
    • Date: December 2014
    • Abstract: The exchange rate is one of the most important prices in any open economy. Tracking deviations from its long-run value may provide important information for policymakers. One way to track such deviations is to compute the distribution of exchange-rate observed values and compare them with those of Benford’s law. I document such cases for 15 Latin American countries, for the two most widely traded currencies. Latin American countries are small open economies that are characterized for having different degrees of dollarization and intervention in the forex market. This is an alternative view of how these characteristics play a role with respect to an implied equilibrium exchange rate.
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  • DT N° 2014-19: Splicing annual and quarterly historical expenditure and sectorial based GDP series using the 2007 base
    • 8Authors: Javier Gutierrez, Martín Martínez, Ricardo Quineche and César Virreira
    • Language: Spanish
    • Date: December 2014
    • Abstract: In August 2014, the Central Bank of Peru published the new historical GDP series as well as the expenditure-side components together with the sectorial value-added components for the 2007 base. The series were published for the period 1950-2013 (annual series) and the period 1980-2013 (quarterly series). This document main task is to present the methods and results of the splicing process to the 2007 base year. The paper also examines the main methodological possibilities and the international experience on the subject. The spliced series, obtained via the preferred method, show coherence with the series built under the previous base year and reflect the economic history of the country.
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  • DT N° 2014-18: The Dynamic Effects of Interest Rates and Reserve Requirements
    • Authors: Fernando Pérez-Forero and Marco Vega
    • Language: English
    • Date: December 2014
    • Abstract: This paper quantifies the dynamic macroeconomic effects derived from both; shocks to conventional monetary policy and shocks to reserve requirement ratios applied to bank deposits in Peru. The analysis tackles reserve requirements on domestic as well as foreign currency deposits. Structural Vector Autoregressive (SVAR) models are identified through a mixture of zero and sign restrictions for the period 1995-2013. Contractionary monetary policy shocks generate a negative effect on aggregate credit and a positive effect on bank spreads between loan and deposit rates. Likewise, shocks to the two reserve requirement ratios produce a negative effect on aggregate credit in their corresponding currencies and a mild effect on both aggregate real economic activity and the price level. We consider possible mechanisms that may help explain the dynamic effects uncovered in the paper.
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  • DT N° 2014-17: Effects of the U.S. quantitative easing on the Peruvian economy
    • Authors: César Carrera, Fernando Pérez Forero y Nelson Ramírez-Rondán
    • Language: English
    • Date: December 2014
    • Abstract: Emerging economies were largely affected because of FED's quantitative easing (QE) policies. This paper assesses the impact of these measures in terms of key macroeconomic variables for a small open economy (SOE) such as Peru. We identify QE policy shocks in a SVAR with Block Exogeneity (Zha, 1999) and we impose a mixture of zero and sign restrictions (Arias et al., 2014). In addition, following Pesaran and Smith (2014), we implement a counterfactual exercise in order to gauge the differences between two scenarios: with and without QE policies. Overall, we find that QE policies had significant effects over financial variables such as aggregate credit and the exchange rate. On the other hand, we find small but significant effects over inflation and output in the medium run.
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  • DT N° 2014-16: Inferring inflation expectations from fixed-event forecasts
    • Author: Diego Winkelried
    • Language: English
    • Date: December 2014
    • Abstract: Often, expected inflation measured by surveys are available only as fixed-event forecasts. Even though these surveys do contain information of a complete term structure of expectations, direct inferences about them are troublesome. Records of a fixed-event forecast through time are associated with time-varying forecast horizons, and there is no straightforward way to interpolate such figures. This paper proposes an adaptation of the measurement model of Kozicki and Tinsley (2012) [“Effective use of survey information in estimating the evolution of expected inflation”, Journal of Money, Credit and Banking, 44(1), 145-169] to suit the intricacies of fixed-event data. Using the Latin American Consensus Forecasts, the model is estimated to study the behavior of inflation expectations in four inflation targeters (Chile, Colombia, Mexico and Peru). For these countries, the results suggest that the announcement of credible inflation targets has been instrumental in anchoring long-run expectations.
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  • DT N° 2014-15: General Equilibrium Analysis of Conditional Cash Transfers
    • Author: Nikita Céspedes
    • Language: English
    • Date: December 2014
    • Abstract: Conditional Cash Transfer (CCT) program is one of the most important anti-poverty policies worldwide. In this document, I study the economic effects of this program by using a stylized dynamic general equilibrium model. I look at the program’s impact on output, human capital, poverty and income inequality. I also study its welfare implications and its effects on the intergenerational transmission of poverty. The quantitative analysis reveals that a long-term implementation of this anti-poverty program helps to reduce the intergenerational transmission of poverty. In aggregate terms the welfare gain is small, but varies across agents; the winners are those who are in the lower tail of the income distribution and the losers are those located in the upper tail. Finally, this program increases the human capital of households and, through this channel, induces a consistent reduction of both poverty and income inequality.
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  • DT N° 2014-14: Productivity and free-trade agreements at the firm-level in Peru
    • Authors: Nikita Céspedes, Maria E. Aquije, Alan Sánchez and Rafael Vera-Tudela
    • Language: Spanish
    • Date: December 2014
    • Abstract: We study the empirical relationship between free trade agreement and productivity in Peru by using a pseudo experimental model. Two productivity indicators, which are measured at the firm level are considered: labor productivity and total factor productivity. We find that firms involved in international free trade either as exporters and / or importers have systematically higher productivity compared to those firms that sell their production to the domestic market only. The free trade agreements, on average, generate a positive productivity gap; also, companies targeting their sales to the United States of America have the largest productivity gaps. Our results are robust to controls for firms’ observable heterogeneity and to firms’ selection bias due to death and / or rotation.
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  • DT N° 2014-13: Sectorial productivity in Peru: A firm-level analysis
    • Authors: Nikita Céspedes, Maria E. Aquije, Alan Sánchez and Rafael Vera-Tudela
    • Language: Spanish
    • Date: December 2014
    • Abstract: In this paper we estimate the production function by economic sectors in Peru, we also characterize the productivity of firms by using two indicators: the total factor productivity and the labor productivity. The data correspond to the total formal firms observed between 2002 and 2011, information that allows to correct the traditional econometric problems behind the current studies that estimate the production function in Peru (endogeneity and selection bias). We find that the capital income share is about 0.64, a parameter that is widely heterogeneous across the main economic sectors. Also, productivity is higher in the secondary and tertiary sectors, in large companies and among forms located in the metropolitan area of Lima.
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  • DT N° 2014-12: Terms of Trade and Total Factor Productivity: Empirical evidence from Latin American emerging markets
    • Authors: Paul Castillo Bardález and Youel Rojas Zea
    • Language: English
    • Date: August 2014
    • Abstract: In this paper we use quarterly data from Chile, Mexico and Peru to study the link between terms of trade and Total Factor Productivity (TFP). We estimate TFP using a stylized general equilibrium model for a small open economy model with quarterly data. Then, the TFP is decomposed into a domestic component and one external component linked to terms of trade using a structural VAR model as in Blanchard and Quah (1989). Our main results shows that the terms of trade has indeed not only short term but also medium and long term effects on TFP, being the short and medium term impact more predominant in the sample.
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  • DT N° 2014-11: The reaction of Peruvian financial markets after the tapering announcement
    • Authors: Marylin Choy and Jorge Cerna
    • Language: Spanish
    • Date: August 2014
    • Abstract: One consequence of the expansionary monetary policies implemented by developed countries, especially the U.S., was the massive influx of foreign investors into emerging market assets. Many analysts warned that these flows were short-lived and that an eventual normalization of the Fed’s monetary policy would lead to a mass exodus of investors from emerging markets, especially from fixed income. Peru has experienced significant inflows from foreign investors into local currency government bonds (BTP). However, the high share of foreigners in outstanding BTPs entails risks associated with local markets’ ability to face an abrupt exit of these investors, given their limited liquidity. Along these lines, the aim of this paper is to assess the behavior of Peru’s financial markets and their participants after the Fed’s initial tapering talks in May 2013. The paper places special emphasis on the behavior of foreign investors and the measures taken by the Peruvian Central Bank.
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  • DT N° 2014-10: Competition among financial intermediaries in Peru
    • Author: Nikita Céspedes-Reynaga andFabrizio Orrego
    • Language: Spanish
    • Date: August 2014
    • Abstract: We estimate the H statistic of market competition following Panzar y Rosse (1987) in the Peruvian banking industry from January 2001 to December 2013.We find that H is 0.5, which is consistent with monopolistic competition. However, in recent years the behavior of H suggests that market competition would have increased. This result is consistent with the arrival of new banks and the reduction of interest rate spreads. We then analyze market competition in the industry of municipal financial institutions, which turns out to be higher than that of the banking industry. Furthermore, in this case we find that the H statistic shows an upward trend since the beginning of the sample. However, in recent years market competition would have become more stable. This result is consistent with the behavior of interest rate spreads and is unrelated to the number of competitors.
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  • DT N° 2014-09: Macroprudential Rules in Small Open Economies
    • Author: María Alejandra Amado Garfias
    • Language: English
    • Date: July 2014
    • Abstract: This document to evaluates the effectiveness, in terms of macroeconomic stability, of monetary policy rules and instruments of prudential supervision. Specifically, it seeks to distinguish between the gains of including in the standard monetary policy rule indicators of financial stress, such as credit growth -augmented rule-; and the gains of applying, in parallel to this augmented rule, a macroprudential instrument that allows a supervisory authority to affect credit interest rates directly. This analysis is performed using a dynamic stochastic general equilibrium model for a small open economy with financial rigidities, and is evaluated in the context of four shocks: financial, productivity, foreign demand and foreign interest rate. The model is calibrated in order to reflect the stylized facts of the Peruvian economy. The results obtained suggest that the effectiveness of the rules depends on the nature of the shock affecting the economy.
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  • DT N° 2014-08: House Prices in Lima
    • Author: Fabrizio Orrego
    • Language: Spanish
    • Date: May 2014
    • Abstract: In this paper we estimate the equilibrium relationship between house prices per m2 in Lima and their macroeconomic fundamentals from 1998.I to 2013.IV. We find that terms of trade, the current account, mortgage loans, an index of the rule of law, demographics and market capitalization have the expected signs and are statistically significant. Then, in order to assess if house prices are misaligned with respect to their fundamentals, we generate 10,000 sequences of equilibrium prices, after bootstrapping the equilibrium relationship. We find that house prices per m2 would not be misaligned with respect to their fundamentals, in despite of the recent increase.
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  • DT N° 2014-07: Macroprudential policy measures in Peru
    • Authors: Marylin Choy and Giancarlo Chang
    • Language: Spanish
    • Date: April 2014
    • Abstract: Many countries have been implementing macroprudential measures to complement traditional regulation and supervision. The latter proved insufficient to deal effectively with imbalances in markets, institutions, and financial infrastructure, which may create systemic risks and threaten financial stability, as in the recent international financial crisis. This study provides a review and analysis of macroprudential measures implemented in Peru, which were mainly focused on preventing excessive credit growth, reducing the destabilizing impact of large capital flows, and limiting the currency risk faced by economic agents in a dollarized economy such as Peru.
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  • DT N° 2014-06: Spillovers, capital flows and prudential regulation in small open economies
    • Authors: Paul Castillo, Cesar Carrera, Marco Ortiz and Hugo Vega
    • Language: English
    • Date: April 2014
    • Abstract: This paper extends the model of Aoki et al. (2009) considering a two sector small open economy. We study the interaction of borrowing, asset prices, and spillovers between tradable and non-tradable sectors. Our results suggest that when it is difficult to enforce debtors to repay their debt unless it is secured by collateral, a productivity shock in the tradable sector generates an increase in asset prices and leverage that spills over to the non-tradable sector, generating an appreciation of the real exchange and an increase in domestic lending. Macro-prudential instruments are introduced under the form of cyclical loan-to-value ratios that limit the amount of capital that entrepreneurs can pledge as collateral. Cyclical taxes that respond to the movements in the price of non-tradable goods are analyzed. Simulation results show that this type of instruments significantly lessen the amplifying effects of borrowing constraints on small open economies and consequently reduce output and asset price volatility.
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  • DT N° 2014-05: Portfolio Efficiency in the Peruvian Private Pension System: A Robust Multiple Fund approach
    • Author: Rodrigo Mendoza
    • Language: Spanish
    • Date: April 2014
    • Abstract: This paper evaluates the financial efficiency of the private pension system investment portfolio throughout the period 2006-2011 in Peru. We find that an investment portfolio is financially efficient when it delivers the smallest Sharpe ratio relative to the market ratio. We estimate the optimal portfolio under a robust Non-Parametric Shrinkage approach that considers all relevant restrictions that may affect the optimization procedure. Our results suggest that the administrators of the Peruvian private pension system have not reached financial efficiency in any of the three types of pension funds.
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  • DT N° 2014-04: Export mode choice: Evidence of Peruvian Firms
    • Author: Manuel Ruiz
    • Language: Spanish
    • Date: April 2014
    • Abstract: This paper tests the self selection hypothesis for Peruvian firms among the following trade choices: (i) to produce only for the domestic market, (ii) to produce for the domestic and for the foreign market, the later indirectly through trade intermediaries, and (iii) to produce for the domestic market and for the foreign market, the former directly by a foreign wholesale affiliate. These choices follow Felbermayr and Jung (2011) and Verma and Mc Williams (2013). By setting up an ordered data probit model we found that firm level Total Factor Productivity is one of the drivers of the firms trade choices.
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  • DT N° 2014-03: Inflation targeting and Quantitative Tightening: Effects of Reserve Requirements in Peru
    • Authors: Adrián Armas, Paul Castillo and Marco Vega
    • Language: English
    • Date: February 2014
    • Abstract: This paper provides an overview of the Reserve Requirements measures undertaken by the Central Bank of Peru. We provide a rationale for the use of these instruments as well as empirical evidence on their effectiveness. In general, the results show that a reserve requirement tightening has the desired effects on interest rates and credit levels both at banks and smaller financial institutions (cajas municipales).
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  • DT N° 2014-02: Fat-Tailed Shocks and the Central Bank Reaction
    • Author: Marco Ortiz
    • Language: English
    • Date: February 2014
    • Abstract: In this paper we extend the model of Kato and Nishiyama (2005) by introducing fat-tailed shocks in a simple new Keynesian framework where the central bank explicitly considers the zero lower-bound constraint on interest rates. We find that shocks with `excess kurtosis' make monetary policy relatively more aggressive far away from the zero lower bound region though, this difference reverts as the economy gets closer to the constrained region. From a quantitative point of view, our findings suggest that variance-preserving shifts in kurtosis, in the shape of Laplace distributed shocks, do not produce significant effects on the optimal reaction of the central bank.
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  • DT N° 2014-01: State Contingent Assets, Financial Crises and Pecuniary Externalities in Models with Collateral Constraints
    • Author: Rocío Gondo
    • Language: English
    • Date: February 2014
    • Abstract: This paper analyzes the effect of developing financial markets for contingent assets on the degree of risk sharing and its ability to reduce spillover effects due to credit externalities. In an environment with persistent shocks and collateral constraints, state contingent assets allow for partial hedging against income fluctuations, which reduce the need for precautionary savings and lower the incidence of financial crises. In addition, these assets reduce the size of spillover effects of individual leverage on the valuation of the collateral constraint of other agents, but is not able to fully correct the pecuniary externality. Private agents take too little state contingent debt by ignoring the larger hedging properties of this instrument against the debt deflation mechanism.
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2013

  • DT N° 2013-23: Default Externalities in Emerging Market Systemic Private Debt Crises
    • Author: Rocío Gondo
    • Language: English
    • Date: December 2013
    • Abstract: This paper analyzes how default externalities lead to an excessive incidence of systemic private debt crises. An individual defaulting borrower does not internalize that her default leads to a depreciation in the exchange rate because international lenders will sell any seizable assets and flee the country. The exchange rate depreciation in turn reduces the value of non-tradable collateral and induces other borrowers to default, leading to a chain reaction of defaults. The inefficiency in default spillovers can be corrected by strengthening the enforcement of creditor rights, so that individual agents default less often, reducing the frequency of systemic default.
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  • DT N° 2013-22: Determinants of unemployment duration in an economy with high informality
    • Authors: Nikita Céspedes, Ana Paola Gutiérrez and Vanessa Belapatiño
    • Language: Spanish
    • Date: December 2013
    • Abstract: We studied unemployment duration in an economy with high informality. The average duration of unemployment in an economy with these characteristics is three months, which is lower than the estimated value for more developed countries. The decreasing trend of this indicator is consistent with greater employment creation and economic growth. Informality of labor, self-employment, and inactivity are the main drivers behind the reduction of unemployment duration. The duration is also consistent with the existence a positive relationship between the rate of risk of leaving unemployment and the duration of unemployment for those recently unemployed. Finally, the duration of unemployment is unaffected by the changes in employment insurance system.
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  • DT N° 2013-21: Dutch disease and fiscal policy
    • Authors: Fabrizio Orrego and Germán Vega
    • Language: English
    • Date: December 2013
    • Abstract: We study the implications of the so-called Dutch disease in a small open economy that receives signifficant inflows of funds due to an extraordinary increase in the international price of minerals. We consider three sectors, the tradeable sector, the booming sector and the non-tradeable sector in an otherwise standard real-business-cycle model. We find that the booming sector, that benefits from high international prices, induces the Dutch disease, that is, the tradeable sector declines, the real exchange rate appreciates, wages increase and the non-tradeable sector improves. We then introduce fiscal policies that aim to alleviate the consequences of the Dutch disease. One particular rule that boosts the productivity of firms seems to offset the effects of the Dutch disease.
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  • DT N° 2013-20: Optimal Taxation and Life Cycle Labor Supply Profile
    • Authors: Nikita Céspedes and Michael Kuklik
    • Language: English
    • Date: December 2013
    • Abstract: The optimal capital income tax rate is 36 percent as reported by Conesa, Kitao, and Krueger (2009). This result is mainly driven by the market incompleteness as well as the endogenous labor supply in a life-cycle framework. We show that this model fails to account for the basic life-cycle features of the labor supply observed in the U.S. data. In this paper, we introduce into this model non-linear wages and inter-vivos transfers into this model in order to account for the life-cycle features of labor supply. The former makes hours of work highly persistent and helps to account for labor choices at the extensive margin over the life cycle. The latter allows us to account for labor choices early in life. The suggested model delivers an optimal capital income tax rate of 7.4 percent, which is significantly lower than what Conesa, Kitao, and Krueger (2009) found.
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  • DT N° 2013-19: The dynamic relationship between the banking system and real economic activity: Evidence from Peru, 1965-2011.
    • Authors: Erick Lahura and Paula Vargas
    • Language: Spanish
    • Date: December 2013
    • Abstract: The objective of this paper is to empirically analyze the dynamic relationship between the banking system and real economic activity in Peru. The analysis is based on the estimation of cointegrated vector autoregressions, the application of exogeneity tests and the identification of permanent and transitory shocks. Using annual data for the period 1965-2011 and three traditional indicators of financial intermediation associated with the banking sector, the following results were obtained: (i) there is a long-run relationship between the evolution of the banking system and real per capita GDP, (ii) real per capita GDP contributes to the prediction of banking system evolution, (iii) a permanent shock has more important effects on both real per capita GDP and banking system evolution than a transitory shock does, and (iv) fluctuations in real per capita GDP are mainly associated with permanent shocks at all horizons, while the short-run fluctuations in the evolution of the banking system are explained mainly by transitory shocks. The results suggest that real per capita GDP can be used by the financial regulator to assess prudential measures related to the evolution of the banking system; furthermore, they make evident that financial regulation must ensure that the level of banking intermediation is consistent with the evolution of real per capita income.
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  • DT N° 2013-18: Learning Through the Yield Curve
    • Author: Marco Ortiz
    • Language: English
    • Date: December 2013
    • Abstract: This paper presents a model in which investors form their expectations in an adaptive way to price bonds, in the spirit of Adam, Marcet and Nicolini (2011). We follow different assumptions regarding the learning process followed by agents. In the case of finite maturity bonds, the knowledge of the pricing of the first maturity will act as an “anchor", limiting the price volatility of bonds with short maturities. As the maturity increases, the price volatility converges to that of the consol bond. Our results suggests this learning mechanism can help the model capture some of the observed empirical dynamics of yield curve.
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  • DT N° 2013-17: Inflation, Information Rigidity, and the Sticky Information Phillips Curve
    • Authors: César Carrera and Nelson Ramírez-Rondán
    • Language: English
    • Date: December 2013
    • Abstract: One of the most important structural relationships for policy makers is the Phillips curve; thus, this topic is the focus of ongoing theoretical and empirical research. We estimate the degree of information stickiness implied by the sticky information Phillips curve proposed by Mankiw and Reis (2002). Using threshold models we identify regimes of high and low inflation and find that each regime is associated with a specific degree of information stickiness. We find evidence that agents update information faster when inflation is higher.
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  • DT N° 2013-16: Foreign Exchange Interventions in Peru
    • Authors: Renzo Rossini, Zenón Quispe and Enrique Serrano
    • Language: English
    • Date: December 2013
    • Abstract: The unprecedented monetary expansion implemented by central banks in developed economies during recent years has induced an extraordinary flow of funds to emerging economies and supported high commodity prices. This has created upward pressures on the value of local currencies and a further expansion of available funds and lending. This situation gave rise to concerns about a posible misalignment of the real exchange rate relative to its equilibrium level, especially because it can be deemed a temporary response to the current phase of the cycle in developed economies, but with a potentially lasting negative impact on the tradable sector of the economy. In Peru, the response to this situation has been an intensification of sterilized intervention in the foreign exchange market and the use of reserve requirements on local banks foreign currency liabilities, reinforcing macro-financial stability in an economy with a partially dollarized financial system. Both instruments have contributed significantly to reducing excessive exchange rate volatility, building up an international reserve buffer, and ensuring a normal flow of bank credit.
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  • DT N° 2013-15: Google Trends: forecasting aggregate employment in Peru using real time data, 2005-2011
    • Authors: Jillie Chang and Andrea Del Río
    • Language: Spanish
    • Date: December 2013
    • Abstract: This paper explores whether Google Trends, Internet browsing statistics, can capture the behavior of macroeconomic variables in Peru. In particular, we analyze the employment index in companies of 100 or more employees in Lima (EI100). Using Google Trends data, we built an index that captures the behavior of the population seeking employment, which was dubbed Google unemployment index (GUI). The results show that the model that includes the GUI is better at forecasting the IE100 than the model that does not include the GUI. Furthermore, it was found that the GUI is useful for nowcasting and one-period forecasts. However, we found that the GUI is not useful for forecasting EI100 further ahead in the future. The relevance of these findings reside in the fact that Google Trends data is available on a weekly basis, around four months before data from official sources. Google Trends is a powerful tool for policy makers, particularly during times of crisis where following the economic activity in real time is crucial.
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  • DT N° 2013-14: Non-Cognitive Skills and Gender Wage Gap in Peru
    • Authors: Gustavo Yamada, Pablo Lavado and Luciana Velarde
    • Language: Spanish
    • Date: December 2013
    • Abstract: Recently there has been growing interest in the relationship between cognitive and non cognitive abilities and labor market outcomes. A large literature provides evidence on the positive connection between gaps in abilities and gaps in wages between men and women. However, attention is focused on developed countries. The main objective of this paper is to identify latent abilities and explore their role in the gender wage gap in Peru. The main identification strategy relies on exploiting panel data information on test scores and arguing that time dependence across measures is due to latent abilities. Results show a significant gender wage gap in Peru and that even though when accounting for measured abilities differences in non cognitive abilities seem irrelevant, when accounting for diferences in actual latent ability non cognitive abilities account for important inter-gender differences in the endowment and returns of abilities. Moreover, inter-gender differences in latent abilities play an important role not only in wage profiles, but in schooling, employment and occupation decisions.
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  • DT N° 2013-13: Assets and Economic Context - Factors related to the poverty in Peru
    • Author: Irina Valenzuela
    • Language: Spanish
    • Date: November 2013
    • Abstract: The purpose of this paper is to identify the main determinants of the probability of being poor in Peru. We follow an Asset-Based approach, incorporating variables related with the economic conditions of a province, such as the degree of development and the incidence of mining activities. A favorable economic context, i.e. a relatively higher per-capita income, reduces the probability of being poor, either for urban or rural households. Furthermore, living in a district with high mining incidence reduces the probability of being poor, but this is not relevant for explaining the probability of being extremely poor. The latter is only relevant for the urban space. We identify Ancash, Arequipa and Madre de Dios as regions where this effect is significant.
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  • DT N° 2013-12: Minimum Wage and Job Mobility
    • Author: Nikita Céspedes Reynaga and Alan Sánchez
    • Language: English
    • Date: August 2013
    • Abstract: We study the effects of the minimum wage in over employment and income by considering a monthly database that captures seven minimum wage changes registered between 2002 and 2011. We estimate that about 1 million workers have an income by main occupation in the neighbourhood of the minimum wage. We found that the minimum wage-income elasticity is statistically significant; the evidence also suggests that those who receive low incomes and those working in small businesses are the most affected by increases in the minimum wage. Employment effects are monotonically decreasing in absolute terms by firm size: moderate in big firms and higher in small firms. Results are robust when assessing the job-to-job transitions. Finally, we present evidence that supports the hypothesis that the minimum wage in Peru is correlated with income. The movement of income distribution in the context of changes in the minimum wage as well as the results provided by a model that captures the drivers of income justify this result.
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  • DT N° 2013-11: Identifying Credit Booms: A Methodological Proposal Using Economic Fundamentals
    • Author: Erick Lahura, Giancarlo Chang and Oscar Salazar
    • Language: Spanish
    • Date: August 2013
    • Abstract: We propose an alternative methodology to identify episodes of credit boom based on economic fundamentals. A credit boom is defined as a period during which the level of credit deviates “excessively" from its trend after registering a period of persistent growth.
      The proposed methodology models credit deviations as a function of: (i) economic fundamentals, and (ii) a state variable that is not observable, which measures the component of credit deviations that is not associated with fundamentals. A credit equation is then estimated from its state-space representation (SS) using the Kalman filter (FK). The proposed methodology is applied to the case of Peru using monthly data for the period January 1994-September 2012. The results suggest two possible episodes of credit boom in Peru, whose peaks were reached in November 2008 and May 2011, respectively.
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  • DT N° 2013-10: Investment grade and foreign direct investment in emerging markets
    • Author: Elmer Sánchez León
    • Language: Spanish
    • Date: August 2013
    • Abstract: The paper estimates the effect on international capital flows to emerging countries of receiving the investment grade classification from credit-rating agencies, the latter being interpreted as the treatment. The paper uses the propensity score matching to build counterfactuals of emerging economies that received the investment grade rating between 1996 and 2011.
      The main results show that the investment grade fosters foreign direct investment only in the short run. These results are robust to the definition of control groups and the specification of the propensity score.
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  • DT N° 2013-09: Disaggregated prediction system - Forecasting evaluation for inflation 2006-2011
    • Author: Carlos R. Barrera Chaupis
    • Language: Spanish
    • Date: July 2013
    • Abstract: The study describes the characteristics of the Disaggregated Prediction System (SPD) within the literature’s boundaries and presents the evaluation of its forecasting performance in terms of the Lima’s CPI 12-month percentage changes, the core inflation index and its complementary non-core inflation index during the forecasting period July 2006 – May 2011. This ex post evaluation considers not only the different performances of the main multivariate specifications included in SPD but also the auto-regressive univariate benchmark model for each aforementioned sub-aggregate. The evaluation considers two root-mean-squared-forecasting error (RMSFE) computations: (i) the static evaluation uses the whole sample of prediction errors selected for each horizon h, and (ii) the dynamic version uses the prediction errors inside fixed-width moving windows (whose upper limit is period τ) selected for a pre-defined horizon h. In line with the literature, the ex post static evaluation shows the convenience of forecasting the disaggregated components with multivariate models, in contrast with using the sub-aggregate series and forecast it with the univariate models. The main result obtained from the dynamic evaluation is the presence of "crossings" in the corresponding temporal evolutions of the RMSFEs for many groups of models: the previously good performance of a group of models becomes a not-so-good performance (Aiolfi & Timmermann(2006)). These "crossings" justify using "combined forecasts".
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  • DT N° 2013-08: Terms of Trade and Current Account Fluctuations - a Vector Autoregression Approach
    • Authors: Juan Carlos Aquino and Freddy Espino
    • Language: English
    • Date: June 2013
    • Abstract: This paper provides evidence on the Harberger-Laursen-Metzler (HLM) effect for the case of Peru. The HLM effect is the deterioration in the savings level of an economy due to a decline in their terms of trade for a given level of investment. This deterioration is caused by lower revenues which worsen the current account. We estimate VAR models that match up the following variables: terms of trade, export prices, import prices, current account, investment and saving. The results show that an unanticipated-permanent increase in the terms of trade (or export prices) improves the current account and saving rises. However, this effect disappears as investment grows faster than saving. On the other hand, an increase in the price of imports negatively affects the current account.
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  • DT N° 2013-07: How Do Terms of Trade Affect Productivity? The Role of Monopolistic Output Markets
    • Author: Luis-Gonzalo Llosa
    • Language: English
    • Date: May 2013
    • Abstract: This paper analyzes how terms of trade affect aggregate productivity using a two-country monopolistic competitive business cycle model driven by aggregate technology shocks. The inefficiency of the equilibrium implies that each country’s productivity is affected by the terms of trade. This introduces a novel mechanism for business cycle synchronization. Moreover, for each country, foreign technology shocks have almost the same effects as domestic technology shocks. The paper also shows how terms of trade movements can lead to excess volatility of consumption and highly persistent productivity. On the quantitative side, the model delivers a degree of business cycle synchronization that is close to the actual comovement of the U.S. economy with the rest of the world. The model also implies that for some small open economies, specially emerging economies, foreign shocks can outperform domestic shocks in explaining their business cycles. Finally, the paper provides a quantification of the influence of the terms of trade on emerging countries’ productivity and finds that it can be large.
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  • DT N° 2013-06: Exchange rate regimes and macroeconomic performance: A survey
    • Authors: Erick Lahura and Marco Vega
    • Language: Spanish
    • Date: April 2013
    • Abstract: The paper evaluates the theoretical and empirical literature about the link between exchange rate regimes and macroeconomic performance. The main conclusion is that the distinction between fixed and floating exchange rate regimes seems important for developing economies but not for developed ones. In particular, flexible exchange rate regimes tend to be more favorable for an emerging economy on theoretical and empirical grounds surveyed in the broad literature. However, the existing evidence is not totally robust to the way the literature classifies regimes.
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  • DT N° 2013-05: Stylized facts in the Peruvian Banking System
    • Author: Freddy Espino
    • Language: Spanish
    • Date: April 2013
    • Abstract: The paper identifies the statistical association between a group of variables describing the banking system and a set of macroeconomic variables. Also, the paper explains the statistical features of the main financial indicators at the level of banks and the links between them. We gather evidence about basic factors that have to be taken into account in the building of forecasting models and stress testing exercises. The results help to set basic patterns about what is useful to model banking system at the aggregate and disaggregate levels.
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  • DT N° 2013-04: The Consumer confidence index and short-term private consumption forecasting in Peru
    • Authors: Leonidas Cuenca, Julio Flores and Daniel Morales
    • Language: English
    • Date: April 2013
    • Abstract: The Consumer Confidence Index of APOYO Consultoría (INDICCA) is computed based on the responses to ten questions of a monthly survey in the city of Lima which aim to reflect the consumers’ spending intentions. We evaluate some sub-components of INDICCA in terms of their predictive and explanatory power of private consumption. In this process, we also evaluate the disaggregation on socioeconomic levels of this index, and a synthetic indicator of confidence based on dynamic factor models suggested by Jonsson and Lindén (2009) as an alternative way to combine the information contained in the sub-components of this index. We find that the explanatory and predictive power of private consumption models in Peru is enhanced when consumer confidence indices are included. However, this improvement is only marginal when other control variables such as employment or inflation are added. In particular, the optimal consumer confidence indicator is the synthetic indicator constructed with the dynamic factor model procedure. The results presented in this paper, although valid for some sub-components, are still inconclusive for the overall INDICCA.
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  • DT N° 2013-03: Are business tendency surveys useful to forecast private investment in Peru? A non-linear approach
    • Authors: Paúl Arenas and Daniel Morales
    • Language: English
    • Date: April 2013
    • Abstract: We use the results of business tendency surveys (BTS) to forecast private investment growth in Peru, exploring the possible non-linear link between the BTS and private investment for forecasting purposes. We find that business confidence indices extracted from BTS, in particular the one calculated by the Central Reserve Bank of Peru (CRBP), are useful to forecast private investment growth in Peru. Moreover, models constructed only with indices extracted from BTS have a higher predictive power than models including control variables such as lagged GDP growth, inflation or interest rates. We also find that non-linear models are not superior to linear ones in forecasting Peruvian private investment. Additionally, the linear model finally selected would allow us to estimate real private investment growth for the current quarter with a 75-day lead with respect to the official publication date, almost twice the lead associated with the estimation methodology used by practitioners.
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  • DT N° 2013-02: Policy Responses to the Global Financial Crisis: What Did Emerging Economies Do Differently?
    • Authors: Francisco Ceballos, Tatiana Didier, Constantino Hevia y Sergio Schmukler
    • Language: English
    • Date: January 2013
    • Abstract: In contrast to the past, many emerging countries faced the global financial crisis of 2008-2009 with more solid financial positions and the required credibility and capacity to conduct countercyclical policies. This allowed them to better cope with the global downturn and thus behave more similarly to developed countries. This paper documents the policy responses and discusses other factors that allowed emerging countries to partially absorb the negative external shock. In particular, it characterizes (i) monetary and exchange rate policies, (ii) fiscal policy, and (iii) external and domestic financial positions.
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  • DT N° 2013-01: Constrained firms, not subsistence activities: Evidence on capital returns and accumulation in Peruvian microenterprises
    • Authors: Kristin Göbel, Michael Grimm y Jann Lay
    • Language: English
    • Date: January 2013
    • Abstract: We investigate the returns to capital and capital accumulation using panel data of Peruvian micro enterprises (MEs). Marginal returns to capital are found to be very high at low levels of capital, but rapidly decreasing at higher levels. The dynamic analyses of capital accumulation in MEs suggest that credit constraints explain a major part of the variation in firm growth. We find a very large positive effect of household non-business wealth on capital stocks of MEs. We also show a sizable effect of risk on accumulation and pronounced interactions between wealth and risk. The presented evidence is consistent with poorly endowed entrepreneurs who operate in imperfect capital markets and a very risky environment.
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2012

  • DT N° 2012-23: Predicting quarterly aggregates with monthly indicators
    • Author: Diego Winkelried
    • Language: English
    • Date: December 2012
    • Abstract: Many important macroeconomic variables measuring the state of the economy are sampled quarterly and with publication lags, although potentially useful predictors are observed at a higher frequency almost in real time. This situation poses the challenge of how to best use the available data to infer the state of the economy. This paper explores the merits of the so-called Mixed Data Sampling (MIDAS) approach that directly exploits the information content of monthly indicators to predict quarterly Peruvian macroeconomic aggregates. To this end, we propose a simple extension, based on the notion of smoothness priors in a distributed lag model, that weakens the restrictions the traditional MIDAS approach imposes on the data to achieve parsimony. We also discuss the workings of an averaging scheme that combines predictions coming from non-nested specifications. It is found that the MIDAS approach is able to timely identify, from monthly information, important signals of the dynamics of the quarterly aggregates. Thus, it can deliver significant gains in prediction accuracy, compared to the performance of competing models that use exclusively quarterly information.
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  • DT N° 2012-22: Fiscal policy considerations in the design of monetary policy in Peru
    • Authors: Renzo Rossini, Zenón Quispe and Jorge Loyola
    • Language: English
    • Date: November 2012
    • Abstract: We evaluate the financial and real linkages between fiscal and monetary policy in Peru, and show that during the recent export commodity price boom, public finances supported the implementation of monetary policy. In particular, the reduction of the net public debt has translated into a greater capability by the Central Bank to sterilize its FOREX interventions. Also, an active policy to enhance the development of the local capital markets, using the issuance of public bonds denominated in local currency as a benchmark, has created the incentive to de-dollarize banking credit. On the other hand, difficulty in fine-tuning public investment around the business cycle in recent years has led to periods of a fiscal stance that does not counteract the real business cycle. This raises the question of the possibility of adopting a structural rule for the public sector balance, based on structural fundamentals.
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  • DT N° 2012-21: Interrelation between the Peruvian derivatives and sovereign bond markets and its impact on local interest rates
    • Authors: Marylin Choy and Jorge Cerna
    • Language: Spanish
    • Date: November 2012
    • Abstract: One consequence of expansionary monetary policies implemented by developed countries is the development of financial markets in emerging countries such as Peru. We have observed not only the evolution of the domestic market, but also its increasing integration with international markets. Therefore it is important to analyze the relationship between financial markets and its implications on local asset prices formation. Special attention deserves the FX derivatives market for having possibly the largest impact on other local markets, under arbitrage conditions. This paper aims to assess the functioning of Peruvian money and derivatives markets and their implication on sovereign bond yields and domestic interest rates in general.
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  • DT N° 2012-20: Constructing a real-time coincident recession index: an application to the Peruvian economy
    • Authors: Liu Mendoza and Daniel Morales
    • Language: English
    • Date: November 2012
    • Abstract: In everyday macroeconomic analysis, businessmen and policymakers monitor many variables in order to assess the current situation of a country’s business cycle. However, making this assessment is extremely difficult, especially on the verge of recessions: does a drop in one or more of these series reveal the beginning of a recession? Or is it a signal of a temporal deceleration? To answer these questions we have constructed a monthly probabilistic coincident index to detect how close we are of a recession in the Peruvian economy using a non-linear Markov-switching model. In the construction of this index, we have explored the informational content of tendency surveys and international economic variables. We find that the index detected with promptness and reliability the recent recession period associated with the international financial crisis even in real-time analysis. However, since it has been developed with information comprising eight years due to limited data availability, its future recession detection capability has yet to endure the test of time.
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  • DT N° 2012-19: The Role of Money in New-Keynesian Models
    • Author: Bennett T. McCallum
    • Language: English
    • Date: October 2012
    • Abstract: In this paper Professor McCalllum reviews the different forms researchers have attempted to introduce a meaningful role of Money in New-keynesian models typically used in the monetary policy analysis at central banks. The paper concludes that, there is still no convincing argument toward the need of including monetary aggregates into the structure of New Keynesian models.
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  • DT N° 2012-18: Regional inflation dynamics and inflation targeting in Peru
    • Authors: Diego Winkelried and José Enrique Gutierrez
    • Language: English
    • Date: October 2012
    • Abstract: The Central Reserve Bank of Peru (BCRP) has been targeting inflation for more than a decade, using Lima’s inflation as the operational measure. An alternative indicator is countrywide inflation, whose quality and real-time availability have improved substantially lately. Hence, given these two somehow competing measures of inflation, two interesting policy questions arise: what have been the implications for national inflation of targeting Lima’s inflation? Would shifting to a national aggregate significantly affect the workings of monetary policy in Peru? To answer these questions, we estimate an error correction model of regional inflations and investigate how shocks propagate across the country. The model incorporates (i) aggregation restrictions whereby each regional inflation is affected by an aggregate of neighboring regions, and (ii) long-run restrictions that uncover a single common trend in the system. The results indicate that a shock to Lima’s inflation is transmitted fast and strongly elsewhere in the country. This constitutes supporting evidence to the view that by targeting Lima’s inflation, the BCRP has effectively, albeit indirectly, targeted national inflation.
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  • DT N° 2012-17: The Frisch elasticity in a labor market with high job mobility
    • Authors: Nikita Céspedes and Silvio Rendón
    • Language: Spanish
    • Date: October 2012
    • Abstract: In this paper we estimate Frisch elasticity in a labor market with high job mobility. We perform a fixed effects estimation following MaCurdy (1981) with a Heckman selection correction. The positive slope of the labor supply is identified by using instrumental variables related to changes in returns to education and experience. We use firm size as a labor demand shifter. We use data from the Permanent Employment Survey of Lima and find that Frisch elasticity is around 0.38, which indicates a relatively flexible labor market. Moreover, we find that this flexibility increases over time as well as income and hours of work.
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  • DT N° 2012-16: Long-Run Money Demand in Latin-American countries: A Nonestationary Panel Data Approach
    • Author: César Carrera
    • Language: English
    • Date: August 2012
    • Abstract: Central banks have long been interested in obtaining precise estimations of money demand given the fact that the evolution of money demand plays a key role over several monetary variables. I use Pedroni's (2002) Fully Modified Ordinary Least Square (FMOLS) to estimate the coefficients of the long-run money demand function for 15 Latin-American countries. The FMOLS technique pool information regarding common long-run relationships while allowing the associated short-run dynamics and fixed effects to be heterogeneous across different members of the panel. For this group of countries, I find evidence of a cointegrating money demand, an income elasticity of 0.94, and an interest-rate semi-elasticity of -0.01.
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  • DT N° 2012-15: A stability index for the Banking System in Peru
    • Author: Freddy Espino
    • Language: Spanish
    • Date: August 2012
    • Abstract: This paper develops a Banking Stability Indicator (IEB) for the Peruvian banking system. This indicator intends to contribute to the construction of an operational measure of "financial stability". Thus, authorities may have an additional tool for the design of policies aimed at preserving financial stability. The IEB is measured from each banks' balance sheets, then aggregated to get the IEB for the whole system. The results are consistent with observations: the banking system IEB recorded a stable evolution similar to the banking system response during the international financial crisis 2007 – 2009.
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  • DT N° 2012-14: Interbank Market and Macroprudential Tools in a DSGE Model
    • Authors: César Carrera and Hugo Vega
    • Language: English
    • Date: June 2012
    • Abstract: The interbank market helps regulate liquidity in the banking sector. Banks with outstanding resources usually lend to banks that are in needs of liquidity. Regulating the interbank market may actually benefit the policy stance of monetary policy. Introducing an interbank market in a general equilibrium model may allow better identification of the final effects of non-conventional policy tools such as reserve requirements. We introduce an interbank market in which there are two types of private banks and a central bank that has the ability to issue money into a DSGE model. Then, we use the model to analyse the effects of changes to reserve requirements (a macroprudential tool), while the central bank follows a Taylor rule to set the policy interest rate. We find that changes to reserve requirements have similar effects to interest rate hikes and that both monetary policy tools can be used jointly in order to avoid big swings in the policy rate (that could have an undesired effect on private expectations) or a zero bound (i.e. liquidity trap scenarios).
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  • DT N° 2012-13: The Real Output Costs of Financial Crisis: A Loss Distribution Approach
    • Authors: Daniel Kapp and Marco Vega
    • Language: English
    • Date: May 2012
    • Abstract: We study cross-country GDP losses due to financial crises in terms of frequency (number of loss events per period) and severity (loss per occurrence). We perform the Loss Distribution Approach (LDA) to estimate a multi-country aggregate GDP loss probability density function and the percentiles associated to extreme events due to financial crises.
      We find that output losses arising from financial crises are strongly heterogeneous and that currency crises lead to smaller output losses than debt and banking crises. Extreme global financial crises episodes, occurring with a one percent probability every five years, lead to losses between 2.95% and 4.54% of world GDP.
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  • DT N° 2012-12: The Effects of Mobile Phone Infrastructure: Evidence from Rural Peru
    • Authors: Diether W. Beuermann, Christopher McKelvey and Carlos Sotelo Lopez
    • Language: English
    • Date: Abril 2012
    • Abstract: We exploit the timing of cell phone coverage in rural Peru to investigate its effects on economic development. We exploit information regarding the location, date of installation and technical characteristics of cell phone towers in order to construct coverage patterns at the village level from 2001 through 2007. We then merge this information with national household surveys spanning the same period. Estimates suggest an increase of 7 percentage points in the likelihood of self reported cell phone ownership after coverage, an increase of 7.5 percent in yearly household expenditures, and a 13.5 percent increase in the value of assets.
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  • DT N° 2012-11: Trade linkages and growth in Latin America: A time-varying SVAR approach
    • Authors: Diego Winkelried and Miguel Angel Saldarriaga
    • Language: English
    • Date: Abril 2012
    • Abstract: This paper examines how shocks originated in large economies around the globe have transmitted to the growth rates of Latin American countries. For this purpose, a highly parsimonious structural VAR model – identified through bilateral trade linkages – is proposed, tested, estimated and simulated. Since trade weights evolve through time, the effect of shocks are time-varying. Thus, we are able to quantify how growth in the region has been affected by tighter trading linkages with fast-growing emerging economies, and how it has responded to a new world trade structure, featuring China as a major player. It is found that about half of the vigourous growth reported in Latin American countries by the end of the 2000s can be attributed to (direct and especially indirect) multiplier effects induced by the spectacular growth of the Chinese economy over the same period.
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  • DT N° 2012-10: CPI inflation’s common cycle and homogeneous groups
    • Author: Carlos R. Barrera Chaupis
    • Language: Spanish
    • Date: Abril 2012
    • Abstract: The paper quantifies the precision gains in forecasting CPI headline inflation by grouping the set of CPI items as homogeneous groups and by forecasting the inflation rates of those CPI sub-aggregates before aggregating them. We obtain two sets of homogeneous groups by applying a clustering method to both the whole set of CPI items and to the set of CPI items pre-classified as belonging to CPI inflation’s common cycle. We have named them control set and preferred set, respectively. These are alternatives to the set of official classifications (conventional set). The disaggregated models are estimated by using these three sets of groups. We find that: (1) the forecasts obtained by the two sets of homogeneous groups are more precise than those obtained by the conventional set. (2) Those obtained by the control set are the most precise forecasts. Therefore, in order to improve the forecasting performance of disaggregated models, the use of clustered homogeneous groups is highly recommended.
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  • DT N° 2012-09: Capital Controls with International Reserve Accumulation: Can this Be Optimal?
    • Authors: Philippe Bacchetta, Kenza Benhima and Yannick Kalantzis
    • Language: English
    • Date: Abril 2012
    • Abstract: Motivated by the Chinese experience, we analyze a semi-open economy where the central bank has access to international capital markets, but the private sector has not. This enables the central bank to choose an interest rate different from the international rate. We examine the optimal policy of the central bank by modelling it as a Ramsey planner who can choose the level of domestic public debt and of international reserves. The central bank can improve savings opportunities of credit-constrained consumers modelled as in Woodford (1990). We find that in a steady state it is optimal for the central bank to replicate the open economy, i.e., to issue debt financed by the accumulation of reserves so that the domestic interest rate equals the foreign rate. When the economy is in transition, however, a rapidly growing economy has a higher welfare without capital mobility and the optimal interest rate differs from the international rate. We argue that the domestic interest rate should be temporarily above the international rate. We also find that capital controls can still help reach the first best when the planner has more fiscal instruments.
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  • DT N° 2012-08: Forecasting Export Prices Using Exchange Rates: The Case of Peru
    • Authors: Jesús Ferreyra and José Vásquez
    • Language: Spanish
    • Date: February 2012
    • Abstract: Forecasting terms of trade is an important input to the design of macroeconomic policies and it is even more important in countries like Peru - a small open economy that mostly exports primary inputs. In this paper, we use the methodology applied in Chen, Rogoff and Rossi (2009) to forecast the change in Peruvian export prices using the changes in an exchange rate index of countries that export primary inputs. The results show that these indices have a good predictive power to forecast export prices in Peru. They fare better than other standard forecasting tools such as the autorregresive or random walk models.
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  • DT N° 2012-07: Using Survey Data on Inflation Expectations in the Estimation of Learning and Rational Expectations Models
    • Author: Arturo Ormeño
    • Language: English
    • Date: February 2012
    • Abstract: Do survey data on inflation expectations contain useful information for estimating macroeconomic models? I address this question by using survey data in the New Keynesian model by Smets and Wouters (2007) to estimate and compare its performance when solved under the assumptions of Rational Expectations and learning. This information serves as an additional moment restriction and helps to determine the forecasting model for inflation that agents use under learning. My results reveal that the predictive power of this model is improved when using both survey data and an admissible learning rule for the formation of inflation expectations.
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  • DT N° 2012-06: Reserve Requirements and Economic Models
    • Author: César Carrera
    • Language: Spanish
    • Date: February 2012
    • Abstract: The role of reserve requirements has been a matter of continuous debate in the monetary policy related literature. The heterogeneity in its application across countries suggests that there is no consensus on the optimal strategy to follow regarding this policy tool. In this paper I review models in which reserve requirements policies play different roles. Given the changing nature of such roles, economists differ in how effective these policies are. An important aspect to highlight is that the recent theoretical literature conceptualizes reserve requirements as a mean to stabilize the banking system and to help achieve a central bank’s macroeconomic objectives.
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  • DT N° 2012-05: Measuring the Effects of Monetary Policy Using Market Expectations
    • Author: Erick Lahura
    • Language: English
    • Date: January 2012
    • Abstract: In order to quantify the effects of monetary policy, this paper employs an alternative empirical measure of monetary policy shocks based on market expectations obtained from media and survey information in Peru. Using monthly data for the period 2003-2011, we use the proposed measure as a variable representing exogenous variation in monetary policy and evaluate its dynamic impact on output and prices. The results show a coherent picture of the effects of monetary policy compared to alternative approaches in terms of both the magnitude and the timing of the effects.
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  • DT N° 2012-04: Estimating Information Rigidity using Firms’ Survey Data
    • Author: César Carrera
    • Language: English
    • Date: January 2012
    • Abstract: The slope of the sticky information Phillips curve proposed by Mankiw and Reis (2002) is based on the degree of information rigidity on the part of firms. Carroll (2003) uses an epidemiology model of expectations and finds evidence for the U.S. of a one-year lag in the transmission of information from professional forecasters to households. Using financial institutions? and firms? survey data from Peru and the model proposed by Carroll, I estimate the degree of information rigidity for the Peruvian economy. This paper also considers heterogeneous responses and explores the cross-sectional dimension of these survey forecasts. I find that the degree of information stickiness is such that it takes between one and three quarters for updating information, a result that is robust to different specifications.
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  • DT N° 2012-03: Employment Protection and Business Cycles in Emerging Economies
    • Authors: Ruy Lama and Carlos Urrutia
    • Language: English
    • Date: January 2012
    • Abstract: We build a small open economy, real business cycle model with labor market frictions to evaluate the role of employment protection in shaping business cycles in emerging economies. The model features matching frictions and an endogenous selection effect by which inefficient jobs are destroyed in recessions. In a quantitative version of the model calibrated to the Mexican economy we find that reducing separation costs to a level consistent with developed economies would reduce output volatility by 15 percent. We also use the model to analyze the Mexican crisis episode of 2008 and conclude that an economy with lower separation costs would have experienced a smaller drop in output and in measured total factor productivity with no significant change in aggregate employment.
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  • DT N° 2012-02: Financial Frictions and the Interest-Rate Differential in a Dollarized Economy
    • Author: Hugo Vega
    • Language: English
    • Date: January 2012
    • Abstract: This paper presents a partial equilibrium characterization of the credit market in an economy with partial ?financial dollarization. Financial frictions, in the form of costly state veri?cation and banking regulation restrictions, are introduced and their impact on lending and deposit interest rates denominated in domestic and foreign currency studied. The analysis shows that reserve requirements act as a tax that leads banks to decrease deposit rates, while the wedge between foreign and domestic currency lending rates is decreasing in exchange rate volatility and increasing in the degree of correlation between entrepreneur?s returns and the exchange rate.
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  • DT N° 2012-01: Impact of Juntos program on early nutrition
    • Authors: Alan Sánchez and Miguel Jaramillo Baanante
    • Language: Spanish
    • Date: January 2012
    • Abstract: An extensive literature suggests that early nutritional deficiencies have long-term implications on human capital accumulation and labor market productivity. Cash conditional transfer programs that target poor families have the potential of providing long-term benefits to those benefited early in life. This study explores the impact of Juntos, a large-scale cash conditional transfer program operating in Peru since 2005, on the nutritional status of children below the age of five years. Due to the non-experimental nature of the program, two methodologies are applied: (a) propensity score matching and diff-in-diff propensity score matching; and, (b) estimations with district and maternal fixed effects. Results suggest that the program reduced the prevalence of extreme undernutrition. In addition, conditional on being a recipient of the program, positive effects on nutritional status are found due to the length of the exposition for children with relatively well educated mothers.
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2011

  • DT N° 2011-23: Firms' Investment Decisions in the presence of Financial Dollarization
    • Author: Pablo J. Azabache La Torre
    • Language: Spanish
    • Date: December 2011
    • Abstract: We evaluate the balance sheet effect in the Peruvian economy using information of 114 firms from 1998 to 2009. First, we determine whether the competitiveness effect (positive) is greater than the net worth effect (negative). Since the balance sheet effect is statistically significant, it is the case that the net worth effect is indeed greater than the competitiveness effect. That is, after a real depreciation, firms with dollar denominated debt invest relatively less than firms with sol denominated debt. These results are robust to the estimation method and the inclusion of control variables. In a second step, we estimate the two effects separately. The results show a negative net worth effect and a positive competitiveness effect. Both are statistically significant.
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  • DT N° 2011-22: Dedollarization and financial robustness
    • Authors: Rocio Gondo and Fabrizio Orrego
    • Language: English
    • Date: December 2011
    • Abstract: This paper evaluates the qualitative and quantitative implications of financial dedollarization of firms' liabilities on real aggregates in a small open economy model. We extend the standard Cespedes, Chang, and Velasco (2004) model by allowing entrepreneurs borrow in both foreign and domestic currency so as to finance firms' capital needs. A real depreciation reduces the value of firms' net worth whenever there is a currency mismatch in their balance sheets. Under flexible exchange rates, a lower degree of dollarization lessens the negative impact on output and investment, since there is a smaller increase in the cost of external borrowing. The quantitative results show that the balance sheet channel accounts for about 70 percent of the output and investment drop in Peru following the Russian Crisis, and a reduction in debt dollarization would have reduced output drop in 0.9 percentage points of GDP.
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  • DT N° 2011-21: Poverty and economic growth: trends during the 2000s
    • Authors: Juan García and Nikita Céspedes
    • Language: Spanish
    • Date: December 2011
    • Abstract: We study the relationship between economic growth and poverty in Peru during the 2000´s. After applying several methodologies, we found evidence that support the claim that the economic growth in this decade was pro-poor.
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  • DT N° 2011-20: Remittances, Economic Development and Welfare in Peru
    • Author: Nikita Céspedes
    • Language: Spanish
    • Date: December 2011
    • Abstract: The document assesses the impact of remittances over a set of economic indicators for Peru. The constant growth of this flow of resources over the past two decades motivates this study. We measure the contribution of remittances in three areas: economic growth, poverty and hours worked. We found that the remittances have contributed significantly to the economic growth. Likewise, since migrants are mostly educated (in relative terms), remittances contribute marginally in reducing poverty. Finally, remittances reduce the hours of work.
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  • DT N° 2011-19: Wavelet-based Core Inflation Measures: Evidence from Peru
    • Authors: Erick Lahura and Marco Vega
    • Language: English
    • Date: December 2011
    • Abstract: Under inflation targeting and other related monetary policy regimes, the identification of non-transitory in ation and forecasts about future inflation constitute key ingredients for monetary policy decisions. In practice, central banks perform these tasks using so-called "core inflation measures". In this paper we construct alternative core inflation measures using wavelet functions and multiresolution analysis (MRA), and then evaluate their relevance for monetary policy. The construction of wavelet-based core inflation measures (WIMs) is relatively new in the literature and their assessment has not been addressed formally, this paper being the first attempt to perform both tasks for the case of Peru. Another main contribution of this paper is that it proposes a VAR-based long-run criterion as an alternative criteria for evaluating core inflation measures. Evidence from Peru shows that WIMs are superior to official core inflation in terms of both the proposed criterion and forecast-based criteria.
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  • DT N° 2011-18: An Empirical Analysis of the Credit-Output Relationship: Evidence from Peru
    • Author: Erick Lahura
    • Language: English
    • Date: December 2011
    • Abstract: This paper investigates the empirical relationship between credit and output in Peru. The analysis is based on the estimation of vector error correction models and the identification of structural shocks. The models considered include real output, real credit growth (in domestic currency, foreign currency and both), and terms of trade. Using quarterly data for the period 1994-2011, the results suggest that real credit growth contain useful information to understand the evolution of the non-deterministic component of real output. In particular, the results show that: (i) there exist a stable long-run relationship between real credit growth, output and terms of trade, (ii) real credit growth is useful in forecasting output in the long-run, and (iii) a structural permanent shock in real credit has positive permanent effects on output. Therefore, credit aggregates could be useful as indicator variables for policymakers.
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  • DT N° 2011-17: Early Nutrition and Cognition in Peru: A Within-Sibling Investigation
    • Authors: Ingo Outes, Catherine Porter, Alan Sanchez and Javier Escobal
    • Language: English
    • Date: December 2011
    • Abstract: An extensive literature documents linkages between early nutritional deficiencies and reduced cognitive ability, educational attainment and, ultimately, lower labor market performance. Few of these studies, however, have shown these correlations to be genuinely causal. We reexamine the nutrition and cognition link, applying instrumental variable methods to a sibling-difference specification for a sample of Peruvian pre-school children. We use household shocks and food price changes as instruments. As such our analysis also quantifies the nutritional and cognitive costs of the 2006-08 global food price crisis. We find that there are significant and negative cognitive effects of early childhood nutritional disinvestments: a decrease in Height-for-Age z-score leads to a reduction in the Peabody Picture Vocabulary Test score of 17-21 percent. The accumulated deficits are sizeable considering that these children are only 3-6 years old and are yet to enroll in formal schooling, with deficits likely to widen in later years.
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  • DT N° 2011-16: Global uncertainty over the South Pacific
    • Authors: Yan Carrière-Swallow and Carlos Medel Vera
    • Language: Spanish
    • Date: November 2011
    • Abstract: According to a growing literature, sudden increases in financial uncertainty trigger drops in economic activity around the world. Existing models suggest that these effects are likely to differ across sectors of the economy. In this paper, we estimate the impact of global uncertainty shocks on sectors of the Chilean and Peruvian economies. Using vector autoregressions, we find that these shocks are responsible for a fall in GDP of 1.7 and 1.0% with respect to trend, respectively. At the sectorial level in Chile, the largest fall on the supply side is estimated to take place in construction (-4.0%), while on the demand side durable-goods consumption (-7.0%) and investment in plant and equipment (-10.0%) are hardest hit. For Peru, the drop in demand is primarily estimated to take place in private investment (-6.0%), while manufacturing (-4.0%) sees the largest fall on the supply side.
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  • DT N° 2011-15: Nonlinearities and asymmetries in the Peruvian credit
    • Author: Walter Bazán
    • Language: Spanish
    • Date: September 2011
    • Abstract: The purpose of this paper is to identify the non-lineal and asymmetric behavior of the banking credit for the case of Peru during 1994 - 2010. These characteristics are important because monetary policy, financial regulation, and business strategies from the part of the banks change according to the state of the economy. To this purpose, I use two-regime models: LSTAR and Markov Switching. Both of them identify the contraction state during 1999-2004. For these years, the probability of transition in between regimes may be related to the recessive impact of international crises. These results show that the expansionary regime is harsher, the series does not have a long memory, and its adjustment to different type of shocks is relatively faster.
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  • DT N° 2011-14: Sequential incompleteness and dynamic suboptimality in stochastic OLG economies with production
    • Author: Fabrizio Orrego
    • Language: English
    • Date: August 2011
    • Abstract: I study a stochastic overlapping generations model with production and three-period- lived agents. Agents trade bonds and risky capital. Unlike the two-period model, I show that a stationary equilibrium in which prices and allocations depend solely on the aggregate capital stock and the current shock does not exist. The recursive equilibrium becomes the relevant equilibrium concept.
      For the recursive formulation of the model, markets are sequentially incomplete and hence I show that there is room for Pareto improvements in terms of intergenerational risk sharing. Finally, I examine whether the introduction of capital income taxation improves the allocation of risk.
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  • DT N° 2011-13: Habit formation and sunspots in overlapping generations models
    • Author: Fabrizio Orrego
    • Language: English
    • Date: August 2011
    • Abstract: I introduce habit formation into an otherwise standard overlapping generations economy with pure exchange populated by three-period-lived agents. Habits are modeled in such a way that current consumption increases the marginal utility of future consumption. With logarithmic utility functions, I demonstrate that habit formation may give rise to stable monetary steady states in economies with hump-shaped endowment pro?les and reasonably high discount factors. Intuitively, habits imply adjacent complementarity in consumption, which in turn helps explain why income effects are sufficiently strong in spite of logarithmic utility. The longer horizon further strengthens the income effect. Finally, I use the bootstrap method to construct stationary sunspot equilibria for those economies in which the steady state is locally stable.
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  • DT N° 2011-12: Exchange rate pass-through and inflation targeting in Peru
    • Author: Diego Winkelried
    • Language: English
    • Date: August 2011
    • Abstract: It has been widely documented that the exchange rate pass-through to domestic inflation has decreased significantly in most of the industralised world. As microeconomic factors cannot completely explain such a widespread phenomenon, a macroeconomic explanation linked to the inflationary environment - that a low and more stable inflation rate leads to a decrease in the pass-through - have gained popularity. Using a structural VAR framework, this paper presents evidence of a similar decline in the pass-through in Peru, a small open economy that gradually reduced inflation to international levels in order to adopt a fully-fledged inflation targeting scheme in 2002. It is argued that the establishment of a credible regime of low inflation has been instrumental in driving the exchange rate pass-through down.
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  • DT N° 2011-11: The Distribution of the Size of Price Changes
    • Authors: Alberto Cavallo and Roberto Rigobon
    • Language: English
    • Date: June 2011
    • Abstract: Different theories of price stickiness have distinct implications on the number of modes in the distribution of price changes. We formally test for the number of modes in the price change distribution of 36 supermarkets, spanning 22 countries and 5 continents. We present results for three modality tests: the two best-known tests in the statistical literature, Hartigan's Dip and Silverman's Bandwidth, and a test designed in this paper, called the Proportional Mass test (PM). Three main results are uncovered. First, when the traditional tests are used, unimodality is rejected in about 90 percent of the retailers. When we used the PM test, which reduces the impact of smaller modes in the distribution and can be applied to test for modality around zero percent, we still reject unimodality in two thirds of the supermarkets. Second, category-level heterogeneity can account for about half of the PM test's rejections of unimodality. Finally, a simulation of the model in Alvarez, Lippi, and Paciello (2010) shows that the data is consistent a combination of both time and state-dependent pricing behaviors.
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  • DT N° 2011-10: Preferences of the Central Reserve Bank of Peru and optimal monetary policy rules in the inflation targeting regime
    • Authors: Nilda Mercedes Cabrera Pasca, Edilean Kleber da Silva Bejarano Aragón y Marcelo Savino Portugal
    • Language: English
    • Date: June 2011
    • Abstract: This study aims to identify the preferences of the monetary authority in the Peruvian regime of inflation targeting through the derivation of optimal monetary policy rules. To achieve that, we used a calibration strategy based on the choice of values of the parameters of preferences that minimize the square deviation between the true interest rate and interest rate optimal simulation. The results showed that the monetary authority has applied a system of flexible inflation targeting, prioritizing the stabilization of inflation, but without disregarding gradualism in interest rates. On the other hand, concern over output stabilization has been minimal, revealing that the output gap has been important because it contains information about future inflation and not because it is considered a variable goal in itself. Finally, when the smoothing of the nominal exchange rate is considered in the loss function of the monetary authority, the rank order of preferences has been maintained and the smoothing of the exchange rate proved insignificant.
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  • DT N° 2011-09: Amplifying impact of inventory adjustment to demand shocks under flexible specifications
    • Author: Carlos R. Barrera
    • Language: Spanish
    • Date: June 2011
    • Abstract: The paper qualitatively approximates the conceivably asymmetric dynamic relationships among GDP growth, inventory growth and three types of aggregate demand growth (internal public demand, internal private demand and external export demand) during the Peruvian experience of market-based growth (1993-2010). In order to capture the potentially important asymmetries in the conditional mean vector, a particular flexible dynamic model (neural VAR) is proposed. The model's perturbation vector is distributed multivariate Student-t distribution with conditional scale matrix following an autoregressive conditionally heteroskedastic (ARCH) process. The parameters of these conditional objects are then robust to the presence of outliers, which reduces the misspecification arising from spurious asymmetries in the conditional means. After covering the required computational cost, the approximated parameter estimates could reveal incentives to maintain inventories which are additional to the traditional production smoothing incentive. A statistically significant parameter estimate inside the contemporaneous structural matrix points out that a positive shock in private demand growth will be absorbed mainly by a more than proportional increase in the production growth on impact. This amplifier impact from demand shocks to production evolution is consistent with the numbers advanced on the average incidence of inventory investment over production growth during the four most recent recessions. This average incidence can then be explained by the aggregate inventory cycle (not necessarily of final goods).
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  • DT N° 2011-08: Capital Flows, Monetary Policy and FOREX Interventions in Peru
    • Authors: Renzo Rossini, Zenón Quispe and Donita Rodríguez
    • Language: English
    • Date: May 2011
    • Abstract: This article explains the main features of the sterilized intervention in the foreign exchange market and the use of non-conventional policy instruments as applied by the Central Reserve Bank of Peru in order to avoid credit booms or busts in a context of a partially dollarized financial system. This monetary policy framework is based on a risk management approach that includes as the main policy tool the short-term interest rate within an inflation targeting regime. This framework helped to reduce the impact of the recent global financial crisis on the Peruvian economy and allowed to rejoin the path of growth with low inflation, avoiding major disruptions from the surge of capital inflows.
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  • DT N° 2011-07: A Quantitative General Equilibrium Approach to Migration, Remittances and Brain Drain
    • Author: Nikita Cespedes
    • Language: English
    • Date: May 2011
    • Abstract: Developing countries have experienced an outstanding outflow of skilled workers (brain- drain) over the last several decades. Additionally, migrants tend to be tied to their country of birth, since they send a large amount of remittances to their relatives. Furthermore, migration is not permanent, since a considerable number of workers return to their country of birth after a migration spell. In this paper we develop a model that is consistent with these facts. We use our model to address some important issues in the migration literature from a theoretical perspective. We study the general equilibrium effects of migration, its long-term effects, and its welfare effects, and we see whether the joint effect of return migration and remittances is strong enough to offset the effects of skilled migration. Finally, we evaluate the effectiveness of policy interventions that attempts to offset the effects of a brain drain.
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  • DT N° 2011-06: A composite leading indicator for the Peruvian economy based on the BCRP's monthly business tendency surveys
    • Authors: Richard Etter and Michael Graff
    • Language: English
    • Date: April 2011
    • Abstract: This paper documents the construction of a composite leading indicator for the Peruvian economy based on the business tendency surveys (BTS) conducted by the Banco Central de Reserva del Perú (BCRP). We first classify potential composite leading indicators into "semantic" and "sophisti-cated" types. The former are based on the contents of the underlying indicators, whereas the latter results from statistical analyses relating to pre-determined reference series. We show that the BCRP BTS data provides a suitable basis for the construction of a sophisticated indicator with the Peru-vian year-on-year GDP growth rate as a reference series. The indicator selection consists of a num-ber of steps comprising semantic analyses of the questionnaire items, cross-correlation analyses as well as turning point analyses. We argue that based on these analyses, the choice should fall on five indicators, relating to firm-specific questionnaire items as well as to items relating to the sector or economy as a whole. The composite leading indicator is computed as the fist principal component of the selected variables. In-sample, it shows a lead of four months before the reference series, which amounts to about six months before the first official data release dates. Due to the limited number of observations (the BCRP's BTS now covering about eight years), we did not reserve any data points for out-of-sample analyses of the suggested composite leading indicator. Accordingly, the performance of the indicator still has to stand the test of time and its lead should be carefully monitored.
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  • DT N° 2011-05: Monetary Policy and Stock Market Booms
    • Authors: Lawrence Christiano, Cosmin Ilut, Roberto Motto y Massimo Rostagno
    • Language: English
    • Date: March 2011
    • Abstract: Historical data and model simulations support the following conclusion. Inflation is low during stock market booms, so that an interest rate rule that is too narrowly focused on inflation destabilizes asset markets and the broader economy. Adjustments to the interest rate rule can remove this source of welfare-reducing instability. For example, allowing an independent role for credit growth (beyond its role in constructing the inflation forecast) would reduce the volatility of output and asset prices.
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  • DT N° 2011-04: The impact of inflation on income distribution: the importance of the level of initial income inequality
    • Authors: Carlos Aparicio and Raquel Araujo
    • Language: Spanish
    • Date: February 2011
    • Abstract: Several authors have focused their research on analyzing the extent to which monetary policy would be important to avoid major distortions on income distribution. Empirical evidence indicates that low and controlled inflation is progressive. On the other hand, a strong unanticipated inflationary shock works as a regressive tax. This study sustains that in the least equitable countries, inflation generates more significant impacts on income inequality than in the case of the most equitable. Thus, the role of monetary policy in a country with high initial income inequality would be more important as an inflationary shock would have major consequences on this economy than in others. Different models of static and dynamic panel are developed, controlling for other variables found within the literature and the presence of endogeneity or weak exogeneity between some of them and the level of inequality. From the results, we verify the presence of a change in the relationship between inflation and inequality to the level of initial income inequality of the countries, as well as the presence of a non-linear relationship between these two variables. Also, the results support that only under hyperinflationary events the relationship between inflation and income inequality becomes relevant.
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  • DT N° 2011-03: Self-Fulfilling Risk Panics
    • Authors: Philippe Bacchetta, Cédric Tille and Eric van Wincoop
    • Language: English
    • Date: February 2011
    • Abstract: Recent crises have seen large spikes in asset price risk without dramatic shifts in fundamentals. We propose an explanation for these risk panics, based on selfful filling shifts in beliefs about risk, that are driven by a negative link between the current asset price and risk about the future asset price. This link implies that risk about the future asset price depends on uncertainty about future risk. This dynamic mapping of risk into itself gives rise to the possibility of multiple equilibria and can generate risk panics. In a panic, risk beliefs are coordinated around a macro fundamental that becomes a sudden focal point of the market. The magnitude of the panic is larger the weaker this macro fundamental. The sharp increase in risk leads to a large drop in the asset price, decreased leverage and reduced market liquidity. While the model is not aimed at modeling the specifics of any particular financial crisis, we show that its implications are broadly consistent with what happened during the 2007-2008 crisis.
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  • DT N° 2011-02: Telecommunications Technologies, Agricultural Profitability, and Child Labor in Rural Peru
    • Author: Diether W. Beuermann
    • Language: English
    • Date: February 2011
    • Abstract: This paper provides evidence on the effects of access to telecommunications technologies on agricultural profitability and human capital investment decisions among highly isolated villages in rural Peru. I exploit a quasi-natural experiment, in which the Peruvian government through the Fund for Investments in Telecommunications (FITEL) provided at least one public (satellite) payphone to 6,509 rural villages that did not previously have any kind of communication services (either landlines or cell phones). The intervention provided these phones mainly between years 2001 and 2004. I show that the timing of the intervention was uncorrelated with baseline outcomes and exploit differences in timing using a uniquely constructed (unbalanced) panel of treated villages spanning the years 1997 through 2007. The main findings suggest that phone access generated increases of 16 percent in the value per kilogram received by farmers for their agricultural production, and a 23.7 percent reduction in agricultural costs. Moreover, this income shock translated into a reduction in child (6 – 13 years old) market work of 13.7 percentage points and a reduction in child agricultural work of 9.2 percentage points. Overall, the evidence suggests a dominant income effect in the utilization of child labor.
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  • DT N° 2011-01: Credit impulse and GDP in Peru:1992-2009
    • Authors: Erick Lahura y Hugo Vega
    • Language: Spanish
    • Date: February 2011
    • Abstract: This paper applies a recursive approach to evaluate the credit – output relationship empirically using Peruvian quarterly data for the period between 1992 and 2009. Given the nature of the series, econometric analysis is based on the estimation of a vector error correction model (VECM) which establishes the existence of a dynamic relationship between the growth rate of output and the "credit impulse", the latter defined as the change in the growth rate of credit. The results show that the credit impulse in domestic currency (soles) contains relevant information to predict the growth rate of output in the short run.
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2010

  • DT N° 2010-22: Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data
    • Authors: Daniel Paravisini, Veronica Rappoport, Philipp Schnabl and Daniel Wolfenzon
    • Language: English
    • Date: December 2010
    • Abstract: This paper presents evidence on the effect of credit supply shocks on exports. Capital flow reversals in Peru during the 2008 financial crisis induced a decline in the supply of credit by domestic banks with high share of foreign-currency denominated liabilities. We use this variation to estimate the elasticity of exports to bank credit. We use matched customs and firm-level bank credit data to control for non-credit related factors that may also affect the level of exports: we compare changes in exports of the same product and to the same destination by firms borrowing from different banks. Exports react strongly to changes in the supply of credit in the intensive margin, irrespectively of the firms' export volume. In the extensive margin, the negative credit supply shock increases the probability of exiting a product-destination export market, but does not significantly affect the number of firms entering an export market. The magnitude of the respective elasticities, as well as their heterogeneity across firm and export flow observable characteristics, are estimated.
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  • DT N° 2010-21: The Bank Lending Channel in Peru: evidence and transmission mechanism
    • Author: César Carrera
    • Language: English
    • Date: December 2010
    • Abstract: In the past ten years the Peruvian economy has experienced important structural changes regarding monetary policy. This document focuses on the bank lending channel as part of the transmission process to macroeconomic activity in the Peruvian economy based on Bernanke, Gertler, and Gilchrist (1996) flight-to-quality argument. The purpose of this work is to identify the bank lending channel (using bank level data), and test its relevance for understanding the transmission to economic activity by comparing monetary policy effects under two scenarios; with and without a bank lending channel (using structural autoregressive vectors). As in Gambacorta (2005), I consider a sample period in which a policy variable can capture the monetary policy stance of the central bank. For the case of Peru, I conclude that the bank lending channel has operated but this channel is not important for identifying the transmission process from monetary policy to macroeconomic activity.
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  • DT N° 2010-20: Transitory shocks and long-term human capital accumulation: the impact of conflict on physical health in Peru
    • Author: Alan Sánchez
    • Language: English
    • Date: December 2010
    • Abstract: The recent literature on human capital highlights the importance of investments during the first few years after birth as a determinant of economic outcomes later in life, including labour productivity. This paper assesses the relationship between conflict exposure -a transitory, aggregate, shock- and early nutrition. The relationship between conflict exposure and human capital outcomes can be put into doubt due to the endogenous nature of conflict. In this paper I use a rich dataset that permits me to trace the intensity of a country-specific, large-scale, conflict across regions and over time at the monthly frequency over a 20-year period. I use this data to link conflict exposure prevalent around the time of birth to child-level outcomes of birth cohorts born over an analogous time period. The identification strategy exploits differences in the intensity of exposure between siblings in turn determined by year-month of birth. Results show that, on average, early exposure to conflict did not have an effect on infant mortality but had large negative effects on short-term nutritional outcomes, particularly for the poor. These results suggest that, unless compensatory investments were at place, the Peruvian conflict might have had long-term effects on human capital accumulation through a nutritional channel.
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  • DT N° 2010-19: Monetary aggregates and monetary policy: an empirical assessment for Peru
    • Author: Erick Lahura
    • Language: English
    • Date: December 2010
    • Abstract: In recent years the theoretical and empirical literature has shown a tendency to discard the use of money in monetary policy. This paper provides an empirical evaluation of the relevance of monetary aggregates in the conduct of monetary policy in Peru, a small open and partially dollarized economy. Based on recursive analysis of vector error correction models and allowing for structural breaks, we find that M3 is the only monetary aggregate that helps forecast inflation in Peru and therefore can be useful in monetary policy. There is no clear evidence about the usefulness of any other narrower monetary aggregate either as a potential monetary policy instrument or as an information variable.
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  • DT N° 2010-18: Estimating The Natural Interest Rate for Peru: A Financial Approach
    • Author: Javier Pereda
    • Language: Spanish
    • Date: December 2010
    • Abstract: This paper estimates the natural interest rate for Peru in the period 2004-2010. Two models are estimated: a model based on the uncovered interest rate parity (UIP), and the other based on the forward rate of the yield curve. Estimation results show a decreasing trend of the natural interest rate in the period under study –on line with the international evidence- and a expansive stance of the monetary policy (positive interest rate gap).
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  • DT N° 2010-17: Some stylized facts of returns in the foreign exchange and stock markets in Peru
    • Authors: Alberto Humala y Gabriel Rodríguez
    • Language: English
    • Date: December 2010
    • Abstract: Some stylized facts for foreign exchange and stock market returns are explored using statistical methods. Formal statistics for testing presence of autocorrelation, asymmetry, and other deviations from normality is applied to these financial returns. Dynamic correlations and different kernel estimations and approximations of the empirical distributions are also under scrutiny. Furthermore, dynamic analysis of mean, standard deviation, skewness and kurtosis are also performed to evaluate time-varying properties in return distributions. Main results reveal different sources and types of non-normality in the return distributions in both markets. Left fat tails, excess kurtosis, return clustering and unconditional time-varying moments show important deviations from normality. Identifiable volatility cycles in both forex and stock markets are associated to common macro financial uncertainty events.
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  • DT N° 2010-16: Asymmetric responses of domestic fuel prices to WTI shocks
    • Author: Carlos Barrera
    • Language: Spanish
    • Date: December 2010
    • Abstract: The paper approximates the dynamic relationships between domestic fuel prices and the WTI from 2000 to 2009. From September 2004, these prices have been administered by the FEPCDP, a price stabilization fund. To capture the presence of asymmetries inside the vector of conditional means, this paper lays out a flexible dynamic model (neural VAR), a t-Student distribution for the associated disturbance vector, and a dynamic heteroskedastic model (ARCH) for the conditional covariance matrix. The parameter approximation is consistent with FEPCDP's protocols.
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  • DT N° 2010-15: The Evolution of Retail Payment Systems in Peru
    • Authors: Marylin Choy y Victor Roca
    • Language: Spanish
    • Date: December 2010
    • Abstract: The paper describes the evolution of interbank retail payment systems in Peru from 2005 to 2010. Credit transfers have grown rapidly in the past five years, even though the number and volume of transactions are still the lowest in the region. Hence, certain measures that would foster electronic transfers in the medium term are being implemented. These actions highlight the role of the Central Bank and the financial community in the sense that users of the financial system are encouraged to replace cash and checks by electronic instruments, particularly credit transfers.
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  • DT N° 2010-14: Total factor productivity and signal noise volatility in an incomplete information setting
    • Author: Hugo Vega
    • Language: English
    • Date: November 2010
    • Abstract: Imperfection information models where agents solve some kind of signal extraction problem are multiplying and developing fast. They have commonly been used to study the impact of imperfect information on the business cycle and the importance of news versus noise shocks. This paper attempts to apply the framework to a di¤erent, albeit related, question: that of the e¤ect of volatility (both in news and noise) on the economy, from a long and short run perspective. An RBC model where the agent faces imperfect information regarding productivity is developed and calibrated in order to address the question, coming to the conclusion that the long run e¤ect is insigni?cant while further development is required to address the short run conclusively.
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  • DT N° 2010-13: Transmission Channels of Monetary Policy in Peru
    • Authors: Paul Castillo, Fernando Perez y Vicente Tuesta
    • Language: Spanish
    • Date: November 2010
    • Abstract: This paper presents an extension of the model proposed by Bernanke and Mihov (1998), which includes financial dollarization, in order to estimate the effects of monetary policy in Peru for the period 1995-2009. The results show that the effects of monetary policy in a dollarized economy are similar to the ones observed in non-dollarized economies. In particular, after a restrictive monetary policy shock, interest rates rise, monetary aggregates decrease, exchange rate drops, aggregate demand slows and inflation diminishes. However, exchange rate shocks are important determinants of the money market. Additionally, there is evidence that after the adoption of the inflation targeting regime in 2002 the Central Bank reacts more importantly to money demand shocks than to exchange rate shocks.
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  • DT N° 2010-12: Demography, Stock Prices and Interest Rates: The Easterlin Hypothesis Revisited
    • Author: Fabrizio Orrego
    • Language: English
    • Date: September 2010
    • Abstract: During the twentieth century, the U.S. witnessed a cyclical birth rate. This in turn shaped the evolution of the ratio of middle-age to young adults, or MY ratio, which captures the stance of the population pyramid at any given time. In this paper, I study the effects of demographic change, as measured by the MY ratio, on stock prices and interest rates. I construct an equilibrium model in the spirit of Geanakoplos et al. (2004). The model relates the economic fortune of a cohort to its relative size (Easterlin hypothesis) and matches qualitatively the long-run trends in real interest rates and stock prices in the U.S. postwar era. The first prediction of the model is that the price-earnings ratio and stock prices should be in phase with the MY ratio. The second prediction is that real interest rates should move inversely with the MY ratio, except after the peak in the MY ratio. Unlike Geanakoplos et al. (2004), this model does not predict that stock prices should move inversely with real interest rates. On the contrary, this model shows that in a stationary cyclic equilibrium there may be independent movements in stock and bond prices, which are necessary to prevent arbitrage opportunities.
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  • DT N° 2010-11: Peru: Drivers of De-dollarization
    • Author: Mercedes García-Escribano
    • Language: English
    • Date: July 2010
    • Abstract: Peru has successfully pursued a market-driven financial de-dollarization during the last decade. Dollarization of credit and deposit of commercial banks—across all sectors and maturities—has declined, with larger declines for commercial credit and time and saving deposits. The analysis presented in this paper confirms that de-dollarization has been driven by macroeconomic stability, introduction of prudential policies to better reflect currency risk (such as the management of reserve requirements), and the development of the capital market in soles. Further de-dollarization efforts could focus on these three fronts. Given the now consolidated macroeconomic stability, greater exchange rate flexibility could foster de-dollarization; additional prudential measures could further discourage banks' lending and funding in foreign currency; while further capital market development in domestic currency would help overall financial de-dollarization.
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  • DT N° 2010-10: Innovation in Payment Systems: The market for credit transfers in Peru
    • Authors: Milton Vega, Roy Ayllón y Gonzalo Chavez
    • Language: Spanish
    • Date: July 2010
    • Abstract: This study is a first approach to identify the factors behind the underdevelopment of the credit transfer market in Peru, despite the lower risk and higher efficiency that this instrument provides to final customers.
      Following the literature on the topic of innovation, this paper focuses on the notion that payment systems are a network industry and in this context it identifies incentives and constraints for the development of the credit transfer market.
      We conclude that the limiting factors include:
      • The fee structure at the level of clearing services and at the level of final customers.
      • Incentives for banks’ investment in their own network rather than in the common network.
      • Lack of financial literacy.
      • The presence of ad-hoc payment mechanisms that limit the development of payment systems.
      Thus, in order to develop the credit transfer market, efforts should be made in order to minimize the constraints and disseminate the advantages of using this instrument over cash and checks.
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  • DT N° 2010-09: Monetary Policy in the presence of Informal Labour Markets
    • Authors: Paul Castillo y Carlos Montoro
    • Language: English
    • Date: July 2010
    • Abstract: In this paper we analyse the effects of informal labour markets on the dynamics of inflation and on the transmission of aggregate demand and supply shocks. In doing so, we incorporate the informal sector in a modified New Keynesian model with labour market frictions as in the Diamond-Mortensen-Pissarides model. Our main results show that the informal economy generates a "buffer" effect that diminishes the pressure of demand shocks on aggregate wages and inflation. Finding that is consistent with the empirical literature on the e¤ects of informal labour markets in business cycle fluctuations. This result implies that in economies with large informal labour markets the interest rate channel of monetary policy is relatively weaker. Furthermore, the model produces cyclical flows from informal to formal employment consistent with the data.
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  • DT N° 2010-08: The effects of monetary policy shocks in Peru: Semi-structural identification using a factor-augmented vector autoregressive model
    • Author: Erick Lahura
    • Language: English
    • Date: July 2010
    • Abstract: The main goal of this paper is to analyze the effects of monetary policy shocks in Peru, taking into account two important issues that have been addressed separately in the VAR literature. The first one is the difficulty to identify the most appropriate indicator of monetary policy stance, which is usually assumed rather than determined from an estimated model. The second one is the fact that monetary policy decisions are based on the analysis of a wide range of economic and financial data, which is at odds with the small number of variables specified in most VAR models. To overcome the first issue, Bernanke and Mihov (1998) proposed a semi-structural VAR model from which the indicator of monetary policy stance can be derived rather than assumed. Meanwhile, the data problem has been resolved recently by Bernanke, Boivin and Eliasz (2005) using a Factor-Augmented Vector Autoregressive (FAVAR) model. In order to capture these two issues simultaneously, we propose an extension of the FAVAR model that incorporates a semi-structural identification approach a la Bernanke and Mihov, resulting in a VAR model that we denominate SS-FAVAR. Using data for Peru, the results show that the SS-FAVAR's impulse-response functions (IRFs) provide a more coherent picture of the effects of monetary policy shocks compared to the IRFs of alternative VAR models. Furthermore, it is found that innovations to nonborrowed reserves can be identified as monetary policy shocks for the period 1995-2003..
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  • DT N° 2010-07: Bayesian Estimation of a Simple Macroeconomic Model for a Small Open and Partially Dollarized Economy
    • Author: Jorge Salas
    • Language: English
    • Date: July 2010
    • Abstract: I describe a simple new-keynesian macroeconomic model for a small open and partially dollarized economy, which closely resembles the Quarterly Projection Model (QPM) developed at the Central Bank of Peru (Vega et al. (2009)). Then I use Bayesian techniques and quarterly data from Peru to estimate a large group of parameters. The empirical findings provide support for some of the parameters values imposed in the original QPM. In contrast, I find that another group of coefficients – e.g., the weights on the forward-looking components in the aggregate demand and the Phillips curve equations, among several others – should be modified to be more consistent with the data. Furthermore, the results validate the operation of different channels of monetary policy transmission, such as the traditional interest rate channel and the exchange rate channel. I also find evidence that in the most recent part of the sample (2004 onwards), the expectations channel has become more prominent, as implied by the estimated values of the forward-looking parameters in the aggregate demand and the Phillips curve equations.
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  • DT N° 2010-06: Methodological proposal for individual targeting of social programs
    • Authors: Jose Valderrama y Juan Pichihua
    • Language: Spanish
    • Date: July 2010
    • Abstract: We propose a methodology to identify recipients of social programs. First we construct a welfare index and then we define several thresholds that help identify recipients. The estimation of the index uses principal components analysis with optimal scaling. The calculation of the thresholds is based on the minimization of a function that depends on errors such as infiltration and sub coverage.
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  • DT N° 2010-05: Liquidity Shocks and the Business Cycle
    • Author: Saki Bigio
    • Language: English
    • Date: May 2010
    • Abstract: This paper studies the properties of an economy subject to random liquidity shocks. As in Kiyotaki and Moore [2008], liquidity shocks affect the ease with which equity can be used as to finance the down-payment for new investment projects. We obtain a liquidity frontier which separates the state-space into two regions (liquidity constrained and unconstrained). In the unconstrained region, the economy behaves according to the dynamics of the standard real business cycle model. Below the frontier, liquidity shocks have the effects of investment shocks. In this region, investment is under-efficient and there is a wedge between the price of equity and the real cost of capital. As with investment shocks, we argue that liquidity shocks are not an important source of business cycle fluctuations in absence of other frictions affecting the labor market.
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  • DT N° 2010-04: Worker Profile and the Return of Education in the informal economy
    • Authors: Daniel Barco y Paola Vargas
    • Language: Spanish
    • Date: May 2010
    • Abstract: We present a theoretical framework that accounts for labor market segmentation (formal and informal markets). Based on survey data (ENAHO 2007), we determine the informality levels according to different definitions. We also identify key factors that explain labor inclusion in both formal and informal markets. Finally, we estimate the returns to education for the two markets.
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  • DT N° 2010-03: Wage Gaps between Formals and Informals
    • Authors: Daniel Barco y Paola Vargas
    • Language: Spanish
    • Date: May 2010
    • Abstract: This paper borrows the non parametric approach proposed by Ñopo (2004) to calculate the wage gap between formal and informal workers in Peru. Using data from the 2007 National Household Survey, the wage gap is decomposed into four components, two of which represent the differences related to observable and unobservable characteristics between formal and informal workers. For employees, these differences account for 55 and 18 percent of the gap, respectively. For independent workers, on the other hand, they represent 37 and 27 percent of the gap, respectively. Then the wage gap is not attributable solely to observable factors associated with labor supply.
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  • DT N° 2010-02: Inflation, Oil Price Volatility and Monetary Policy
    • Authors: Paul Castillo, Carlos Montoro y Vicente Tuesta
    • Language: English
    • Date: January 2010
    • Abstract: In a fully micro-founded New Keynesian framework, we characterize analytically the relation between average inflation and oil price volatility by solving the rational expectations equilibrium of the model up to second order of accuracy. Higher oil price volatility induces higher levels of average inflation. We also show that when oil has low substitutability and the central bank responds to output fluctuations, oil price volatility matters for the level of average inflation. The model shows that when oil price volatility increases, average inflation increases whereas average output falls: this implies a trade-off also between average inflation and that of output. The analytical solution further indicates that for a given level of oil price volatility, average inflation is higher when marginal costs are convex in oil prices, the Phillips Curve is convex, and the degree of relative price dispersion is also higher. We perform a numerical exercise showing that the model with a empirically plausible Taylor rule can replicate the level of average inflation observed in the U.S. in 2000s.
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  • DT N° 2010-001: Neural networks for predicting the daily exchange rate
    • Author: Carlos R. Barrera
    • Language: Spanish
    • Date: January 2010
    • Abstract: Structural models that deal with daily FX forecasts rarely achieve the precision of random walk models. This paper implements a forecasting exercise with a set of forecasting models. The estimation sample starts from January 2004 to September 2008. The daily FX depreciation forecasts generated by a random walk model are compared with those generated by AR(p) models, p-lag perceptron models and fractional AR(p) models. The results show that perceptrons are able to anticipate the pattern of daily FX movements, specifically with an information set including lags of the bid-ask FX spread as a percentage of average daily quotations, the daily Yen/US$ FX depreciation and the daily US$/sol domestic interbank interest rate differential.
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2009

  • DT N° 2009-015: The Blessing of Natural Resources: Evidence from a Peruvian Gold Mine
    • Author: Fernando M. Aragón and Juan Pablo Rud
    • Language: English
    • Date: December 2009
    • Abstract: This paper studies the impact of Yanacocha, a large gold mine in Peru, on the local population. Using annual household data from 1997 to 2006, we find robust evidence of a positive effect of the mine's demand of local inputs on real income. The e ffect, an average income increase of 1.7% per 10% additional mine's purchases, is only present in the mine's supply market and surrounding areas. We also find evidence of improvements on measures of welfare and reduction of poverty. We examine and rule out that our results are driven by increased public expenditure associated to the mining revenue windfall. Using a spatial general equilibrium model, we interpret these results as evidence of net welfare gains generated by the mine's backward linkages and its multiplier effect.
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  • DT N° 2009-014: The effects of Climate change in Perú
    • Author: Paola Vargas
    • Language: Spanish
    • Date: July 2009
    • Abstract: It has been documented that global warming may increase the average temperature in 5°C by the end of the century, which would imply a global GDP loss of up to 20 percent. However, the impact of climate change is not distributed uniformly across countries. Countries such as China and USA would be the least affected, even though they are the main producers of greenhouse gases. On the other hand, the most affected regions would be Africa, South and South-East Asia and Latin America. Following Dell et al. (2008), we show that in Peru an increase of the upper bound of the temperature range in 2°C and the variance of rainfall in 20% by 2050, would reduce potential GDP in 6% and 20% by 2030 and 2050, respectively. We then show that certain environmental policies would offset the effects of climate change.
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  • DT N° 2009-013: Sectoral business cycles in Peru and leading indicators for non-primary GDP growth
    • Author: Carlos Barrera
    • Language: Spanish
    • Date: June 2009
    • Abstract: The paper describes the stylized facts of Peruvian business cycles since the 1990s. Following the NBER methodology, the paper identifies the peaks and troughs from 1994 to 2007. The YoY non-primary production growth turns out to be the benchmark. The paper shows that an aggregate common cycle in the Peruvian economy does not exist (asynchrony). Besides, not only the amplitude of sectoral business cycles has risen recently, but also they occur one after the other. Both results imply that the structural reforms implemented in the early 1990s increased the flexibility of the economy to absorb adverse shocks (resilience). Finally, the paper proposes a criterion for building a leading indicator index whenever an aggregate cycle is not available. This index is able to anticipate the start of the recessive phase in the second semester of 2008, which may be the beginning of the first aggregate common cycle in Peru.
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  • DT N° 2009-012: Targeting Analysis of Social Policy
    • Authors: Marielle del Valle, Augusta Alfageme
    • Language: Spanish
    • Date: April 2009
    • Abstract: This document shows two levels of targeting analysis: geographical and by households or individuals. The first shows the outcomes of the Poverty Map by districts of 2007, and performs a geographical allocation analysis of the public expenditure in the "Glass of Milk Program" (Programa de Vaso de Leche) and the "Municipal Compensation Fund" (Fondo de Compensación Municipal - Foncomun). The second provides a targeting study at the household level to analyze the effectiveness of the following social programs Community Kitchens (Comedores Populares), School Breakfast (Desayuno Escolar), Glass of Milk (Vaso de Leche) and Integrated Health Insurance (Seguro Integral de Salud), using the last available information of the National Hosehold Survey carried out by the National Institute of Statistics. Of the 1 834 districts of the country, 56 percent have monetary poverty rates higher than 50 percent. It is also shown, with the exception of Metropolitan Lima, that the Foncomun's resources are not being allocated in accordance to the social infraestructure needs at geographical level. In the case of the Glass of Milk, it can be observed that, without Lima, the geographical allocation matches better the monetary poverty, however, there are serious targeting problems at the household level. With regard to the targeting at the household level, we find that from 2005 to 2007, the leakage measured by the monetary method increased in 8, 6, 5 and 2 percentage points in Community Kitchen, Glass of Milk, Integrated Health Insurance and School Breakfast programs, respectively. These programs received resources for S/. 985 millions in 2007; however due to leakages, the loss of resources amounted to S/. 387 millions. The coverage has improved in School Breakfast and Integrated Health Insurance, but it has not done so in Community Kitchen and Glass of Milk, for which the undercoverage remained constant. We also perform a measure of the targeting errors identifying as poor population those with precarious living conditions. With this definition, the leakage levels decrease, but their trend is very similar to the one calculated with the monetary method.
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  • DT N° 2009-011: Estimating Output Gap, Core Inflation, and the NAIRU for Peru
    • Authors: Gabriel Rodríguez
    • Language: English
    • Date: April 2009
    • Abstract: Following Doménech and Gómez (2006), and using quarterly Peruvian data for 1970: 1-2007: 4, I estimate a model that exploits the information contained in the inflation, unemployment and private investment rates in order to estimate non-observable variables as output gap, the NAIRU and the core inflation. The unknown parameters are esti- mated by maximun likelihood using a Kalman filter initialized with a partially difuse prior, and the unobserved components are estimated using a smoothing algorithm. The results suggest that only the infla- tion rate contains useful information in order to estimate the output gap. Estimates suggest poor performance for the unemployment and private investment rates. I explain this issue as related to the poor quality of the construction of these variables. In order to perform a sensitivity analysis, I estimate the output gap using other alternative methods. The correlations are very different and very far away from the estimates obtained in this paper. It is clear that estimates obtained from simple statistical filters give poor approximations.
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    • Accepted in Applied Econometrics and International Development.
  • DT N° 2009-010: Using A Forward-Looking Phillips Curve to Estimate the Output Gap in Peru
    • Author: Gabriel Rodríguez
    • Language: English
    • Date: April 2009
    • Abstract: This paper identifies the output gap using the theoretical definition of the gap within a Phillips curve. The results show that the output gap is large and persistent. Furthermore, the output gap is not correlated with the stochastic trend which is similar to the asumption used in the unobserved components model. The model is extended to include information coming from the unemployment rate. The results are very similar to those obtained without this variable indicating poor additional information in the unemployment rate to identify the output gap. Other estimations of the output gap are performed. I use the procedures of Hodrick and Prescott (1997), Baxter and King (1999), Beveridge and Nelson (1981), Morley, Nelson and Zivot (2003), the unobserved components model of Clark (1987) and a simple quadratic trend. The results show strong di¤erences between our measure of output gap and the other measures. The closer measure is the one obtained using the unobserved component model and the simple quadratic trend.
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  • DT N° 2009-009: Estimation of a Time Varying Natural Interest Rate for Peru
    • Authors: Alberto Humala, Gabriel Rodríguez
    • Language: English
    • Date: April 2009
    • Abstract: Following the approach of Mésonnier and Renne (2007), we estimate a Natural Rate of Interest (NRI) using quarterly Peruvian data for the period 1996: 3 - 2008: 3. The model has six equations and it is estimated using the Kalman filter with output gap and NRI as unobservable variables. Estimation results indicate a more stable NRI in period 2001: 3 - 2008: 3 than in period 1996: 3 - 2001: 2 and also more stable than the observed real interest rate. Real interest rate gap (difference between real and natural rates), which measures monetary policy stance, indicates a restrictive policy for 1996-2001 and for 2003. Results also suggest a real interest rate greater than NRI for 2002 and for 2004-2008.
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  • DT N° 2009-008: Foreign Exchange Intervention and Exchange Rate Volatility in Peru
    • Authors: Alberto Humala, Gabriel Rodríguez
    • Language: English
    • Date: April 2009
    • Abstract: Flexible exchange rate experience in Peru has been accompanied by frequent official interventions in the form of foreign exchange purchases or sales. Monetary authority pursues reducing excess volatility in the exchange rate through its direct intervention. However, in recent years, this intervention has concentrated in US dollars purchases, apparently signaling a bias towards defending a given exchange rate level (not necessarily fixed). For the period 1994 - 2007, this document assesses consistency of the empirical evidence with the goal of reducing exchange rate volatility. Thus, it uses univariate and multivariate time series models subject to stochastic shifts to study currency pressures. Results suggest consistency with the reduced-volatility goal. Nonetheless, in line with other studies, factors such as the foreign exchange gap with respect to its trend also induce foreign exchange intervention.
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    • Accepted in Applied Economic Letters.
  • DT N° 2009-007: Have European Unemployment Rates Converged?
    • Authors: Dionisio Ramírez Carrera, Gabriel Rodríguez
    • Language: English
    • Date: April 2009
    • Abstract: Using different unit root statistics and the approach of Tomljanovich and Vogelsang (2002), we test for the existence of stochastic and ß - convergence in the unemployment rates of a set of thirteen European countries. Using quarterly data for the period 1984: 1-2005: 4, we observe that there has taken place a convergence process in the majority of European unemployment rates. This process has become more intense since 1993.
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  • DT N° 2009-006: Quarterly Forecasting Model (MPT)
    • Authors: Department of Macroeconomic Models
    • Language: Spanish
    • Date: April 2009
    • Abstract: This paper describes the Quarterly Forecasting Model (MPT) used at the central bank of Peru for monetary policy simulation and for forecasting key macroeconomic variables. The model version illustrated here corresponds to December 2007. The basic structure of the model parallels a typical textbook neo-keynesian model but is tailored to suit the setup of a small open economy with financial dollarization. The paper shows moment simulations, model responses to various shocks hitting the economy and ends with remarks about the model-based forecasting process at the central bank of Peru.
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  • DT N° 2009-005: Education, Corruption and the Natural Resource Curse
    • Authors: Iván Aldave y Cecilia García-Peñalosa
    • Language: English
    • Date: April 2009
    • Abstract: The empirical evidence on the determinants of growth across countries has found that growth is lower when natural resources are abundant, corruption widespread and educational attainment low. An extensive literature has examined the way in which these three variables can impact growth, but has tended to address them separately. In this paper we argue that corruption and education are interrelated and that both crucially depend on a country's endowment of natural resources. The key element is the fact that resources affect the relative returns to investing in human and in political capital, and, through these investments, output levels and growth. In this context, inequality plays a key role both as a determinant of the possible equilibria of the economy and as an outcome of the growth process.
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  • DT N° 2009-004: Learning under Fear of Floating
    • Author: Saki Bigio
    • Language: English
    • Date: April 2009
    • Abstract: Cross-country evidence suggests that during recent years a large fraction of developing countries seem to began to overcome fear of floating, i.e., a lower relative volatility of exchange rates to monetary policy instruments. To explain this trend, we build a model that describes the behavior of Central Banks in developing countries under un- certainty and fear of misspeci cation about the effects of exchange rate depreciations. The Central Bank is uncertain about two sub-models which differ in that exchange rate depreciations can cause output either to expand (textbook effect) or contract (balance sheet effect). Optimal policy within the second sub-model is consistent with fear of floating. A feature of fear of foating is that, by preventing sizeable exchange rate swings, Central Banks could loose valuable information useful to distinguish among models. We describe how the Central Bank's the evolution of the prior depends on the optimal policy and viceversa. We conclude that the trend towards less fear of oating may not be explained by Bayesian or robust policies because it would have been too quick to explain the data. However, if there was a parameter change affecting many countries during the early 2000's, the model generates the observed pattern.
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  • DT N° 2009-003: A Dynamic Stochastic General Equilibrium Model with Dollarization for the Peruvian Economy
    • Authors: Paul Castillo, Carlos Montoro y Vicente Tuesta
    • Language: Spanish
    • Date: March 2009
    • Abstract: This paper develops a dynamic stochastic general equilibrium model, which is calibrated for the Peruvian economy and can be useful for the design and analysis of monetary policy. The model includes a second currency that replaces partially the domestic currency in its functions of unit of account, medium of payment and reserve of value; phenomenon known in the economic literature as partial dollarization. We also include certain real, nominal and financial rigidities to replicate the empirical regularities of the Peruvian macroeconomic data. The model reproduces relatively well the main stylized facts of the Peruvian economy. Moreover, we show how dollarization reduces the power of monetary policy to affect output and increase the vulnerability of the economic activity to foreign shocks. Furthermore, we perform some exercises that show the importance of credibility in the actions of the monetary authority to anchor expectations and to reduce deviation in the inflation rate.
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  • DT N° 2009-002: A note about the growth of private sector credit in Peru
    • Author: Fabrizio Orrego
    • Language: Spanish
    • Date: January 2009
    • Abstract: We identify "credit boom" episodes in Peru, that is, periods in which bank credit to firms and households increases beyond what is considered normal over a typical business cycle expansion. In particular, the results suggest that the recent credit growth is solid, and there is not sufficient evidence of a credit boom.
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  • DT N° 2009-001: Money, Infation and Interest Rate: Does the Link Change when the Policy Instrument Changes?
    • Authors: Paul Castillo, Carlos Montoro y Vicente Tuesta
    • Language: Spanish / English
    • Date: January 2009
    • Abstract: The goal of this paper is to explain a recent regularity observed in economies in which central banks have moved from using a money aggregate as the instrument for the conduction of monetary policy towards a short-term interest rate (for example Peru in 2002). In particular, in those economies we observe that, after the change in the policy instrument, there is a decrease in the macroeconomic volatility accompanied by a reduction in the average level of both inflation and interest rates vis-à-vis an increase in the average level of money aggregates (an increase in the money demand).
      In order to explain the previous stylized fact, a second order solution of a general equilibrium model for a small open economy is evaluated. By analyzing the second order solution we relax the assumption of certainty equivalence which permits consider the role of uncertainty (risk) in the equilibrium solution of the economy. The previous solution takes into account the reduction of macroeconomic uncertainty (risk) as a consequence of changing the instrument (from money aggregates to interest rate rules), helping to explain the stylized fact.
      Our findings show that the use of the interest rate as the instrument for the conduction of monetary policy induces a reduction of macroeconomic risks. In turn, the previous reduction has driven a decrease in the average level of interest rates and inflation which is consistent with the increase in the demand for money observed in Peru in the 2000s. Hence, the recent increase in the growth rate of money aggregates should not be linked, whatsoever, to higher inflation rates.
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2008

  • DT N° 2008-005: Biofuels: Recent developments and their impact on the trade balance,the terms of trade and inflation in Peru
    • Author: Gladys Choy
    • Language: Spanish
    • Date: March 2008
    • Abstract: The significant increase in oil prices in recent years (a record $100 per barrel in December 2007, three times higher than in 2002), as well as a greater concern about environmental issues and global warming, have gone hand-in-hand with a renewed and growing interest in the use of biofuels as an alternative energy source to fossil fuels. This has also led to a significant surge in commodity prices, mainly corn, soy, and other basic foods. This report presents recent developments in the use of biofuels, discusses their advantages and disadvantages, and assesses the balance of payments, terms of trade, and inflation implications of their market perspectives.
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  • DT N° 2008004: Optimal Exchange Rate Stabilization in a Dollarized Economy with Inflation Targets
    • Authors: Nicoletta Batini, Paul Levine, Joseph Perlm
    • Language: English
    • Date: February 2008
    • Abstract: We build a small open-economy model with partial dollarization–households hold wealth in domestic currency and a foreign currency as in Felices and Tuesta (2006). The degree of dollarization is endogenous to the extent of exchange rate stabilization by the central bank. We identify the optimal monetary policy response under com-mitment and discretion and assess the optimal degree of exchange rate stabilization inthis set up, drawing policy implications for countries that target inflation in economies of this kind.
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  • DT N° 2008-003: ¿Can Peru be a New Economic Miracle?
    • Author: Raymundo Chirinos
    • Language: Spanish
    • Date: January 2008
    • Abstract: This paper estimates the probability that Peru becomes a new economic miracle. However, since economic theory does not define what exactly an economic miracle is, we must develop a definition based on the top quintile of the distribution of maximum 10-, 15- and 20-year average rates of growth over the period 1961-2002. By using this criterion, we identify 19 "miracle" economies, which will be compared with a similar number of "average" and "disaster" economies. Through a ordered choice model based on a set of initial conditions we determine the probability that Peru lies in the first group over the next 10, 15 and 20 years. The probability that Peru becomes a miracle in the next 10 years is very high; however, the evidence is less conclusive for longer periods.
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  • DT N° 2008-002: Facing up a sudden stop of capital flows: Policy lessons from the 90's peruvian experience
    • Authors: Paul Castillo Bardález y Daniel Barco Rondán
    • Language: English
    • Date: January 2008
    • Abstract: This paper assesses the policies implemented in the Peruvian economy in response to the sudden stop of capital flows of the end of the nineties. The Peruvian experience during this episode is an interesting case-study because it offers an example of a highly dollarized economy where a sudden stop of capital flows neither had dramatic negative effects on the banking system nor generated an abrupt fall on output. We argue that the large pool of international reserves, the investments on the tradable sector before 1997 and the performance of the fiscal policy during and before the period of financial distress were fundamental to this outcome. We further extract policy lessons and discuss the strengths and the weakness of the Peruvian economy to this type of shocks nowadays.
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  • DT N° 2008-001: Determinants of the size of a monetary policy committee: Theory and cross country evidence
    • Authors: Szilárd Erhart and Jose Luis Vasquez-Paz
    • Language: English
    • Date: January 2008
    • Abstract: Theoretical and empirical studies of different sciences suggest that an optimal committee consists of roughly 5-9 members, although it can swell mildly under specific circumstances. This paper develops a conceptual model in order to analyze the issue in case of monetary policy formulation. The number of monetary policy committee (MPC) size varies according to the size of the monetary zone and overall economic stability. Our conceptual model is backed up with econometric evidence using a 2006 survey of 85 countries. The survey is available for further research and published on the web. The MPC size of large monetary zones (EMU, USA, Japan) is close to the estimated optimal level, but there exist several smaller countries with too many or too few MPC members.
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2007

  • DT N° 2007-019: The payment system intraday liquidity in a dollarized economy: The Peruvian experience
    • Authors: Marylin Choy y Roy Ayllón
    • Language: Spanish
    • Date: December 2007
    • Abstract: The Peruvian financial system is highly dollarized with more than 50 per cent of deposits held in dollars. The structure and operation of the payment system reflect this financial dollarization. Not only does it settle payments in local and foreign currency, but the Intraday Financial Facility (IFF), through which the Central Bank provides liquidity to assure the uninterrupted operation of the payment system, reflects as well the financial system dollarization. Thus, due to the high dollar composition of deposits in the financial system, banks keep large amounts of dollar liquidity at the Central Bank, so as to meet the marginal reserve requirement of 30 per cent, while the lower soles share of deposits as well as the minimum requirement to maintain 1 per cent deposited at the Central Bank, makes the soles liquidity of banks insufficient to settle all the transactions undertaken by the payment system, which for the most part are carried out in local currency, in spite of the financial dollarization. This situation leads the banks to utilize the IFF by means mainly of foreign currency swaps, given the ample availability of dollar liquidity. Nevertheless, the gradual dedollarization and the increasing bankarization are reducing the need to utilize the IFF. It is worth noting that at present not only foreign currency liquidity but also the holdings of Central Bank and Government securities are ensuring that the financial system is able to make use of the IFF and have the excess liquidity in order to settle total payments, both in local and foreign currency, thus enabling the payment system to run smoothly and efficiently.
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  • DT N° 2007-018: The causes and consequences of informality in Peru
    • Author: Norman Loayza
    • Language: Spanish
    • Date: December 2007
    • Abstract: Adopting a legal definition of informality, this article studies the causes of informality in general and with a particular application to Peru. It starts with a discussion on the definition and measures of informality, as well as on the reasons why widespread informality should be of great concern. Then, the article analyzes informality's main determinants, arguing that informality is not single-caused but results from the combination of poor public services, a burdensome regulatory regime, and weak monitoring and enforcement capacity by the state. This combination is especially explosive when the country suffers from low educational achievement and features demographic pressures and primary production structures. Finally, using cross-country regression analysis, the article evaluates the empirical relevance of each determinant of informality. It then applies the estimated relationships to the case of Peru in order to assess the country-specific relevance of each proposed mechanism.
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  • DT N° 2007-017: The monetary policy transmission mechanism under financial dollarization: the case of Peru 1996-2006
    • Authors: Renzo Rossini and Marco Vega
    • Language: Spanish
    • Date: November 2007
    • Abstract: This paper analyzes the changes in the monetary policy transmission mechanism in Peru. A strong conclusion that emerges from this research is that both, the direct interest rate channel and the expectations channel have become more important in the recent years, especially after the Inflation Targeting adoption. The research further explores the implications of financial dollarization for the practice of monetary policy by performing two exercises. First, it compares different degrees of exchange rate flexibility and finds out that the more flexible the exchange rate is, the quicker but weaker the exchange rate pass-through becomes. Second, since financial dollarization may trigger contractionary depreciations, the document studies implications for monetary policy. The conclusion is that the effectiveness of monetary policy can be further improved if the economy becomes less dollarized.
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  • DT N° 2007-016: Nonlinear Volatility Effects on Growth in Developing Economies
    • Author: Nelson Ramirez-Rondan
    • Language: Spanish
    • Date: September 2007
    • Abstract: The empirical fact prompts a negative relation between economic volatility and output growth in developing countries. Nevertheless, some authors found that economic volatility is further characterized by crisis volatility rather than by regular fluctuations around a trend. Thus, in this study we estimate a threshold model in a panel data technique put out by Hansen (1999) in a sample of 38 developing countries from 1960 to 2000. We find a nonlinear effect between volatility and growth since volatilities superior to 5.1% seem to have significant and negative effect on growth and volatilities inferior to 5.1% don't have significant effect.
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  • DT N° 2007-015: Inflation projections disaggregated with robust Sparse VAR models
    • Author: Carlos Barrera
    • Language: Spanish
    • Date: September 2007
    • Abstract: Central banks usually use non-structural and semi-structural models to forecast inflation. The Disaggregated Prediction System is a set of non-structural Sparse VAR models designed to forecast CPI and GDP growth. Even though the models are parsimonious and hence give rise to precise forecasts (Barrera, 2005), the parameter estimates are sensitive to the presence of outliers. The paper lays out a robust statistical multi-equation procedure for Sparse VAR models and quantifies the precision gaisn with a sample that includes a sequence of outliers. The results point out that robust Sparse VAR models improve the forecast of CPI in the medium term.
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  • DT N° 2007-014: Learning about Monetary Policy Rules when the Cost Channel Matters
    • Authors: Gonzalo Llosa and Vicente Tuesta
    • Language: English
    • Date: August 2007
    • Abstract: We study how determinacy and expectational stability (E-stability) of rational expectations equilibrium may be affected by monetary policy when the cost channel of monetary policy matters. We focus on both instrumental Taylor-type rules and optimal target rules. We show that standard instrument rules can easily induce indeterminacy and expectational instability when the cost channel is present. Overall, a naïve application of the traditional Taylor principle in this setting could be misleading. Regarding optimal rules, we find that "expectational-based rules" do not always induce determinate and E-stable equilibrium. This result stands in contrast to the findings of Evans and Honkapohja (2003) for the baseline "New Keynesian" model. Yet, a policy that it is a source of instability under learning in the baseline new keynesian model, i.e. "fundamental rule" under commitment, is a possible antidote when the cost channel is active.
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    • Published in the Journal of Economic Dynamics and Control.
  • DT N° 2007-013: Determinants of economic growth: A survey of recent developments and empirical evidence for the period 1960-2000
    • Author: Raymundo Chirinos
    • Language: Spanish
    • Date: August 2007
    • Abstract: This paper surveys recent developments in the empirical literature on economic growth as well as presents own estimates on the determinants of growth for the period 1960-2000. The latter is made by standardizing the set of control variables usually included in panel data regressions -those derived from the steady state in the Solow-Swan model-. We find that there is no a single determinant of growth; among the determinants there are policy variables such as macroeconomic stability, provision of credit to the private sector and the degree of institutional development; and exogenous variables such as terms of trade and geographical features -latitude and land locking-. The paper also shows that the conditional convergence hypothesis hold and finds a rate of convergence similar to prior studies.
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  • DT N° 2007-011: Structural Fiscal Rules and The Business Cycle
    • Authors: Carlos Montoro and Eduardo Moreno
    • Language: Spanish  
    • Date: August 2007
    • Abstract: In this paper we extend the neoclassical model presented by Baxter and King (1993) to evaluate the effects of two alternative fiscal policy rules on the business cycle. The rules we analyze are similar to those implemented in practice by some countries, such as: limits to the structural fiscal deficit (which eliminates the effects of the business cycle on the government revenues) and limits to conventional fiscal deficit. We focus our analysis in a model calibrated to mimic Peruvian data to evaluate the short run dynamics and the conditions for the stability of the equilibrium. We find that the rule based on the structural balance generates a counter cyclical fiscal policy, which reduces significantly output volatility. Moreover, we find that a condition for a determinate equilibrium in the model endowed with the structural rule is that non-financial government expenditures react more than one–to-one to changes in interest expenditures.
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  • DT N° 2007-010: Oil Shocks and Optimal Monetary Policy
    • Author: Carlos Montoro
    • Language: English
    • Date: August 2007
    • Abstract: This paper investigates how monetary policy should react to oil shocks in a microfounded model with staggered price-setting and oil as a non-produced input in the production function. We extend Benigno and Woodford (2005) to obtain a second order approximation to the expected utility of the representative household when the steady state is distorted and the economy is hit by oil price shocks.
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    • Accepted in the Journal of Macroeconomic Dynamics.
  • DT N° 2007-008: Efficiency of the Monetary Policy and Stability of Central Bank Preferences. Empirical Evidence for Peru
    • Author: Gabriel Rodriguez
    • Language: English
    • Date: May 2007
    • Abstract: Following the approach suggested by Favero and Rovelli (2003), I estimate a three-equations system for different sub-samples for Peru. The results indicate that the preferences of the monetary authority have changed between the diffeerent regimes. In particular, the parameter associated to the implicit target of in‡ation has been reduced significantly. The macroeconomic conditions from the side of the aggregate demand have been more favorable than those related to the aggregate supply. The standard deviation of the monetary rule suggests that it has been conducted successfully in the last regime.
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  • DT N° 2007-007: Application of Three Alternative Approaches to Identify Business Cycles in Peru
    • Author: Gabriel Rodriguez
    • Language: English
    • Date: May 2007
    • Abstract: Three alternative econometric approaches are used to estimate business cycles in the Peruvian economy. These approaches are the Plucking model due to Friedman (1964, 1993), the Markov Switching model proposed by Hamilton (1989) and the Smooth Transition Autoregressive (STAR) model suggested by Teräsvirta (1994). The results show strong rejection of the null hypothesis of linearity, presence of asymmetries and nonlinearities. Furthermore, the methods allow to find the principal episodes of recession for the Peruvian economy.
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    • Accepted in the Journal of Business Cycle Measurement and Analisis.
  • DT N° 2007-006: Monetary Policy in a Dual Currency Environment
    • Authors: Guillermo Felices, Vicente Tuesta
    • Language: English
    • Date: April 2007
    • Abstract: We develop a small open economy general equilibrium model with sticky prices and partial dollarization - a situation where both domestic and foreign currencies coexist. We derive a tractable representation of the model in terms of domestic in‡flation and the output gap in which a trade-off, which depends on the degree of dollarization, arises endogenously due to the presence of foreign interest rate shocks. We use this framework to show analytically how higher degrees of dollarization induce larger volatilities of the output gap and in‡flation, thus hampering a central bank's effectiveness in stabilizing the economy. Our impulse-response functions show that the transmission of such shocks has a positive (negative) effect on in‡flation and negative (positive) effect on the output gap when money aggregates and consumption are complements (substitutes). We also show that a standard Taylor rule guarantees real determinacy of the rational expectations equilibrium. Finally, we demonstrate that a higher degree of dollarization reduces the determinacy region when the overall money aggregate and consumption are substitutes.
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  • DT N° 2007-005: Monetary Policy, Regime Shift and Inflation Uncertainty in Peru (1949-2006)
    • Authors: Paul Castillo, Alberto Humala, Vicente Tuesta
    • Language: English
    • Date: March 2007
    • Abstract: This paper evaluates the link between inflation and inflation uncertainty in a context of monetary policy regime shifts for the Peruvian economy. We use a model of unobserved components subject to regime shifts to evaluate this link. We verify that periods of high(low) inflation me an were accompanied by periods of high(low) both short -and long- run uncertainty in inflation. Interestingly, unlike developed countries, short run uncertainty is important. These relationaships are consistent with the presence of three clearly differentiated regimes. First, a period of price stability, then a high -inflation high-volatility regime, and finally a hyperinflation period. We also verify that during a recent period of price stability, both permanent and transitory shocks to inflation have decreased in volatility. Finally, we find evidence that inflation and money growth rates share similar regime shifts.
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  • DT N° 2007-004: Dollarization Persistence and Individual Heterogeneity (1949-2006)
    • Authors: Paul Castillo, Diego Winkelried
    • Language: English
    • Date: March 2007
    • Abstract: The most salient feature of financial dollarization, and the one that causes more concern to policy makers, is its persistence: even after successful macroeconomic stabilizations, dollarization ratios often remain high. In this paper we claim that this persistence is connected to the fact that the participants in the dollar deposit market are fairly heterogenous, and so is the way they form their optimal currency portfolio.We develop as simple model when agents differ in their ability to process information, which turns out to be enough to generate persistence up on aggregation. We find empirical support for this claim with data from three Latin American countries and Poland.
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    • Accepted in the Journal of International Money and Finance.
  • DT N° 2007-003: Why Central Banks Smooth Interest Rates? A Political Economy Explanation
    • Author: Carlos Montoro
    • Language: English
    • Date: March 2007
    • Abstract: We extend the New Keynesian Monetary Policy literature relaxing the assumption that the decisions are taken by a single policymaker, considering instead that monetary policy decisions are taken collectively in a committee. We introduce a Monetary Policy Committee (MPC), whose members have different preferences between output and inflation variability and have to vote on the level of the interest rate. This paper helps to explain interest rate smoothing from a political economy point of view, in which MPC members face a bargaining problem on the level of the interest rate. In this framework, the interest rate is a non-linear reaction function on the lagged interest rate and the expected inflation. This result comes from a political equilibrium in which there is a strategic behavior of the agenda setter with respect to the rest of MPC's members. Our approach can also reproduce both features documented by the empirical evidence on interest rate smoothing: a) the modest response of the interest rate to inflation and output gap, and b) the dependence on lagged interest rate, features that are difficult to reproduce altogether in standard New Keynesian models. It also provides a theoretical framework on how disagreement among policymakers can slow down the adjustment on interest rates and on "menu costs" in interest rate decisions. Furthermore, a numerical exercise shows that this inertial behavior of the interest rate is internalized by economic agents through an increase in expected inflation.
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  • DT N° 2007-002: Trade and growth: A review of the hypothesis "Learning to Export"
    • Author: Raymundo Chirinos
    • Language: Spanish
    • Date: February 2007
    • Abstract: This paper examines the relationship between trade and growth through the learning-by-exporting mechanism. According to the hypothesis underlying this mechanism, the more a country exports, productivity also increases, which leads to higher rates of growth of the output. A theoretical model supporting this hypothesis is offered here by adapting the Ramsey-Cass-Koopmans model to an open economy where per capita exports are used as the transmission channel of technology. Empirical evidence supporting this mechanism in a wide sample of developing countries is also presented here by means of a panel data model.
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  • DT N° 2007-001: Peru: Investment grade, a short-term challenge
    • Author: Gladys Choy Chong
    • Language: Spanish
    • Date: January 2007
    • Abstract: This paper is aimed at analyzing the criteria used by credit rating agencies to assign different credit ratings and at evaluating the factors that restrain Peru from obtaining an investment grade. Typically, the sovereign rating expresses an opinion, based on both quantitative (macroeconomic indicators) and qualitative indicators (political and institutional risks), about a government's disposition and ability to duly repay all of its financial obligations. Several agencies coincide in rating some countries with an investment grade rating. While S&P and Fitch are stricter than Moody´s in rating countries with an investment grade, Moody's is stricter with countries rated with a speculative grade. In recent years the Peruvian economy has improved significantly and even at a faster pace in terms of growth, inflation and vulnerability ratios than many of Peru's peer-countries. Factors restraining the country from obtaining a better credit rating include the economy's high dependence on commodities, but the low concentration of exports and their relatively higher "diversification" are not taken into account. As regards the external debt, although the weight of the debt is still significant, important efforts have been made to reduce it. Together with the expansion of the tax base and a better management of government spending, this will contribute to improve fiscal flexibility. Another factor considered is the high level of dollarization in the economy. The best way to reduce it is through the persistence of low levels of inflation, an aspect in which Peru is performing even better than economies rated with an investment grade. Along with its significant level of NIRs, the country's low levels of inflation constitute the best coverage against this risk. In order to overcome some of the institutional deficiencies and political limitations, the government should promote a reform in the system of law and justice, gradually reduce the informal sector, and strengthen institutions and the political levels of government. This important progress in macroeconomic terms has been more extendedly recognized by Fitch and S&P, and contrasts widely with Moody's maintaining the rating assigned to Peru. It seems quite evident that Moody's decision is based on the high weight attributed to the Peruvian debt in foreign currency and the degree of dollarization in the economy, rather than on the favorable evolution of macroeconomic indicators, such as the highly significant accumulation of international reserves, which is an indicator of improvement that cannot be denied.
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2006

  • DT N° 2006-010: Financial Dollarization, the portfolio approach and expectations: Evidence for Latin America (1995-2005)
    • Author: Sánchez, Alan
    • Language: Spanish
    • Date: October 2006
    • Abstract: This paper evaluates to what extent financial dollarization in Latin America can be explained by the minimum variance portfolio approach (MVP) proposed by Ize and Levi-Yeyati (2003). Several assumptions behind the portfolio optimization process are studied. If one distinguishes between highly dollarized countries (HD) and the rest of Latin America, the MVP behaves poorly in HD countries (e.g. Peru and Bolivia). In particular, a reduction in the relative volatility does not affect financial dollarization in this group of countries. This result suggests that for HD economies, portfolio considerations are less important than past history to explain the persistence of dollarization.
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  • DT N° 2006-009: Exchange Rate Pass-Through and Monetary Policy: Evidence from OECD countries
    • Authors: César Carrera, Mahir Binici
    • Language: Spanish
    • Date: October 2006
    • Abstract: We provide an empirical analysis about the relationship between exchange rate and different price indexes for each OECD country. We were focused on how different inflation environments could explain a decreasing degree of the exchange rate pass-through over prices in each country. In a second stage, we estimate the relationship between pass-through and prices using individual-country pass-through. We find evidence in favor of the hypothesis that the exchange rate pass-through is lower when it is taken into account environments in which it is observed lower and stables rates of inflation, result which would be associated with a more effective monetary policy in terms of transparency and inflation control.
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  • DT N° 2006-008: Nonlinear effects of monetary policy shocks and real exchange rate in partially dollarized economies: an empirical analysis for Peru
    • Authors: Saki Bigio, Jorge Salas
    • Language: Spanish
    • Date: August 2006
    • Abstract: We explore whether changes in the stance of monetary policy and the real exchange rate generate non-linear effects on output and inflation in Peru. We estimate a STVAR model and compute the impulse-response functions for shocks of different size and sign, and for different initial levels of the output gap. We find that the response of economic variables to monetary policy shocks is non-linear. In particular, we find that monetary policy affects GDP more strongly during recessions and, conversely, inflation responds aggressively during booms. We also find that the negative effect of depreciations is stronger in recessions, and the pass-through to inflation is higher in booms. Further evidence on other variables is discussed in the paper.
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  • DT N° 2006-007: Corruption and Development Indicators: An Empirical Review
    • Authors: Saki Bigio, Nelson Ramírez-Rondán
    • Language: Spanish
    • Date: June 2006
    • Abstract: In this paper we report international evidence on the relationship between corruption and several development indicators such as economic stability, quality in educational expenditures, fiscal income, inequality, investment and economic growth. We first show how this relationship is negative by presenting simple unconditional correlations between corruption and these indicators. We then procede to quantify the effects of corruption on growth: we estimate a Dynamic Panel Data model for a sample of 80 countries and taking 1960-2000 as our sample period. Our findings suggest that in improvement in corruption indicators from levels in Latina America and Africa to developed country standards would increase output growth in 0,5% and 0,7% respectively.
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  • DT N° 2006-006: The Equilibrium Real Exchange Rate in Peru: BEER Models and Confidence Band Building
    • Authors: Jesús Ferreyra and Jorge Salas
    • Language: Spanish
    • Date: June 2006
    • Abstract: This paper uses the "Behavioral Equilibrium Exchange Rate" (BEER) approach to estimate the equilibrium real exchange rate (RER) for Peru. A bootstrap technique is then employed to build confidence bands for the equilibrium path, so that it is possible to determine whether exchange rate misalignments are statistically significant. Additionally, structural breaks are modeled in the long-run relationship between the RER and its fundamentals. Using quarterly data for 1980.I-2005.III, the authors find that the long-run behavior of the Peruvian RER is explained by the following fundamentals: net foreign liabilities, terms of trade, and, less conclusively, government expenditure and openness. Moreover, the ratio of tradable to non-tradable sector productivities, both in domestic terms and relative to trading partners, appears as an additional RER fundamental only since the 1990s. Finally, there is evidence of some statistically significant RER misalignment episodes over the analyzed period.
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  • DT N° 2006-005: Stylized Facts of the Peruvian Economy
    • Authors: Paul Castillo, Carlos Montoro and Vicente Tuesta
    • Language: Spanish
    • Date: June 2006
    • Abstract: In this paper we report the main stylized facts of the business cycle for the Peruvian Economy. This study is important for the development of economic models, which are useful to evaluate the impact of different economic policies. Moreover, for those models to have empirical validity, it is necessary they reproduce the short run dynamics of the economy. Because of this, we need a clear understanding of the stylized facts of the business cycle, in particular the volatility and the co-movements of the main macroeconomic variables. Our results can be summarized as follows: First, we verify an important structural change in the Peruvian economy in the 90´s respect to the 80´s. In particular, we observe both broader trade and financial openness, more stable fiscal and monetary policies, and deeper financial markets. Second, as a consequence of this structural change and the adoption of the fully-fledge inflation targeting regime, the cyclical behavior of the main macroeconomic variables has changed in important ways. In particular, we observe during the last period (1994-2005) in comparison with the previous period (1980-1993): a reduction of almost 4 times in volatility of output and its main components, a higher correlation of the business cycle with terms of trade, a less pro-cyclical fiscal policy, and since 2002, a higher importance of the interest rates on business cycle and inflation fluctuations.
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  • DT N° 2006-004: Credit Cost in Peru
    • Author: Management of Financial Stability
    • Language: Spanish
    • Date: June 2006
    • Abstract: This paper evaluates from a microeconomic perspective the lending cost determinants in the Peruvian banking system in the June 2004-December 2005 period. The evaluation considers the credit market segments identified in a prior study (published in 2002). Furthermore, it reviews the progress occurred in the financial system infrastructure –asymmetric information, credit risk assessing technologies, competitive structure, and credit guarantees performance– in the aforementioned period. The paper also contains a set of "study cases" that contributes to a better understanding of the credit market dynamics. We found evidence that supports the presence of a higher level of competition in every market segment, especially for that of corporate borrowers. Finally, the paper suggests a set of policies to further reduce the cost of credit.
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  • DT N° 2006-003: Measuring the Natural Interest Rate for the Peruvian Economy
    • Authors: Paul Castillo, Carlos Montoro and Vicente Tuesta
    • Language: Spanish
    • Date: June 2006
    • Abstract: Since the adoption of the fully-fledged inflation targeting (IT) regime by an important group of central banks, a measure of both the potential output and the natural interest rate have become one of the main concerns of the research agenda. Estimation of the natural interest rate (NIR) is crucial to capture the stance of the monetary policy. In particular, the gap between the instrument rate of the Central Bank and the NIR can be a useful guideline for the position of the monetary policy and can also help to rationalize policy decisions. In this paper we estimate the NIR for the Peruvian Economy. We do so by applying the Kalman Filter to a semi-structural small open economy model with Peruvian data during he sample 1994-2005. Overall, our findings show a persistent reduction on the Peruvian NIR since 1999, which is related to an improvement on the terms of trade and a reduction on the international interest rate. Moreover, the estimated gap shows a loose monetary impulse between 1994 and 1997, tight between 1998 and 2001, and slightly loose between 2002-2005. Finally, the variance decomposition shows that 25 percent of fluctuations in the gap are explained by fluctuations in the NIR. According to this, a time-fixed NIR would give a quite imprecise measure of monetary policy stance.
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  • DT N° 2006-002: Depreciation expectations and interest rate differentials: Are there regime switches? The Peruvian case
    • Author: Alberto Humala
    • Language: Spanish
    • Date: May 2006
    • Abstract: This paper presents an econometric assessment of the uncovered interest parity (UIP) for Peruvian financial instruments and documents the main empirical regularities in this relationship. The information contents of interest rate differentials about depreciation expectations are assessed under different econometric specifications. In the case of Peru, linear approximations along with periods of relatively high expected inflation suggest that UIP would hold on average over the short term (contrary to international evidence). Alternatively, with price-stability periods (as in a fully-fledged inflation targeting scheme), linear representations show opposite evidence to UIP. When both scenarios are included over a given sample size, regime switching models distinguish between periods consistent with UIP and those periods in which UIP is not so relevant. In particular, Markov switching models signal the importance of foreign exchange volatility to assess UIP validity.
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  • DT N° 2006-001: Inflation does it change when countries adopt inflation targeting?
    • Authors: Marco Vega and Diego Winkelried
    • Language: Spanish
    • Date: March 2006
    • Abstract: Este trabajo revisa la evidencia existente sobre el impacto de la adopción del esquema de metas explícitas de inflación (MEI) sobre la dinámica de la inflación. En particular, se reporta la evaluación econométrica de Vega y Winkelried (2005) y se compara sus resultados con aquellos obtenidos de estudios recientes sobre la materia. Un resultado general de esta revisión es que los efectos sobre la inflación son leves o estadísticamente no significativos cuando un país desarrollado es quien adopta el esquema MEI mientras que los efectos son bastante beneficioso cuando un país en desarrollo es quien adopta el esquema.
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    • Extended version published in the International Journal of Central Banking.
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2005

  • DT N° 2005-008: The pass-through effect of the interest rate and monetary policy in Peru: 1995-2004
    • Author: Erick Lahura
    • Language: Spanish
    • Date: December 2005
    • Abstract: This paper uses a vector error correction model to assess the pass-through of the interbank interest rate to retail interest rates in domestic currency between 1995 and 2004. In the short term, retail interest rates respond asymmetrically to changes in the interbank interest rate. In the long run, on the other hand, the pass-through is incomplete, even though the magnitude has increased since the announcement of the corridor of interest rates (February 2001) and the adoption of the inflation targeting scheme (January 2002). The corridor has also increased the speed of adjustment. Thus, we can infer that monetary policy has had a favorable impact on the pass through.
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  • DT N° 2005-007: A BVAR Forecasting Model For Peruvian Inflation
    • Authors: Gonzalo Llosa, Vicente Tuesta and Marco Vega
    • Language: English, Spanish
    • Date: November 2005
    • Abstract: We build a simple non-structural BVAR forecasting framework to predict key Peruvian macroeconomic data, in particular, inflation and output. Unlike standard applications we build our Litterman prior specification based on the fact that the structure driving the dynamics of the economy might have shifted towards a state where a clear nominal anchor has become well grounded (Inflation Targeting). We compare different BVAR specifications with respect to a "naive" random walk and we find that they outperform the random walk in terms of inflation forecasts at all horizons. However, our PBI forecasts are not accurate enough to beat a "naive" random walk.
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  • DT N° 2005-006: Disaggregated Forecasts for Consumer Price Index (CPI), Producer Price Index (PPI) & Gross Domestic Product (GDP) Changes
    • Author: Carlos R. Barrera Chaupis
    • Language: Spanish
    • Date: November 2005
    • Abstract: This work evaluates the ex post forecasts precision of a set of short term models for the Consumer Price Index (CPI), the Producer Price Index (PPI) and the Gross Domestic Product (GDP) using a recent sample of Peruvian data. We seek to determine whether adding disaggregated information at the level of components improves the forecast precision of the those models. Short term projections constitute an integral part of any forecasting system since those are usually used as starting points for projections made using structural models. In that sense more precise short-term projections help to minimize the forecast errors of medium term models. We find that using disaggregated data improves the forecast precision of the CPI in the very short run but not that of the PPI and the GDP for the same time horizon, even when we use time-varying parameter dynamic models. Finally for forecast time horizons higher than 12 months the forecast precision of models for these three indexes can not be improved using disaggregated data.
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  • DT N° 2005-005: Inflation crisis and the total factor productivity in Latin America
    • Authors: Nelson R. Ramírez Rondán and Juan C. Aquino Chávez
    • Language: Spanish
    • Date: March 2005
    • Abstract: In this paper we analyze the long-run effects of inflation crises periods over Total Factor Productivity (TFP) growth for 18 Latin American countries during the 1961-2000 period, using the Generalized Method of Moments (GMM) in a dynamic panel data model. We find that there are non-linear effects of inflation over TFP growth, that is: high inflation levels have a negative effect on productivity growth (what is in line with endogenous-growth models), whereas lower inflation periods do not have permanent effects over productivity growth (what is in line with predictions of monetary theory). Additionally, we also find that inflation volatility has negative effects on TFP growth. Moreover, our results are robust to a set of control variables, such as supply shocks, trade openness and fiscal burden.
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  • DT N° 2005-004: Using additional information in estimating the output gap in Peru: a multivariate unobserved component approach
    • Authors: Gonzalo Llosa and Shirley Miller
    • Language: English, Spanish
    • Date: March 2005
    • Abstract: One of the key elements for inflation targeting regime is the right identification of inflationary or disinflationary pressures through the output gap. In this paper we provide an estimation of the Peruvian output gap using a multivariate unobserved component (MUC) model, relying on an explicit short run relation between the output gap and inflation rate (Phillips Curve) and structural restrictions over output dynamics. The results show that the MUC output gap estimate is less sensible to end of sample problems and exhibits closer dynamics with the inflation process than the standard output gap estimates.
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  • DT N° 2005-003: The effects of minimum wages on the Peruvian Labour Market
    • Author: Nikita R. Céspedes Reynaga
    • Language: Spanish
    • Date: March 2005
    • Abstract: This study shows evidence of the impact of the Minimum Wage (MW) in Peru. We have found a negative relationship between formal employment and the MW, the employment-MW elasticity is around –0,13. Consistent with this result, in a context in which a legal increase of the MW takes place, the probability of staying occupied is smaller among low-income individuals. We also have found evidence that support the hypothesis that the MW is a referent to wage formation in the formal sector. Additionally, there is evidence that the increase in the MW in Peru in September 2003 had distributional effects in favour of low-income workers.
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  • DT N° 2005-002: Can fluctuations in the consumption-wealth ratio help to predict exchange rates?
    • Authors: Jorge Selaive and Vicente Tuesta
    • Language: English
    • Date: January 2005
    • Abstract: It is well documented that macroeconomic fundamentals are little help in predicting changes in nominal exchange rates compared to the predictions made by a simple random walk. Lettau and Ludvigson (2001) find that fluctuations in the common long-term trend in consumption, asset wealth, and labor income (hereby, consumption-wealth ratio) is a strong predictor of the excess returns. In this paper, we study the role of the consumption-wealth ratio in predicting the change in the nominal exchange rate of a large set of countries. We find evidence that fluctuations in the consumption-wealth ratio help to predict in-sample all the currencies. In terms of out-of-sample forecasts, our results suggest that the consumption-wealth ratio may play a significant role at predicting the Canadian dollar at all horizons and at short-intermediate horizons for some currencies.
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  • DT N° 2005-001: How does a global disinflation drag inflation in small open economies?
    • Authors: Marco Vega and Diego Winkelried
    • Language: English
    • Date: January 2005
    • Abstract: This paper shows how persistent world inflation shocks hitting a small open economy can re-weight the importance of domestic and foreign factors in the determination of prices. In particular, we study why a global disinflation environment may imply a weakening of the channels whereby domestic shocks affect inflation. We derive a state-dependent Phillips curve based on translog preferences that make the elasticity of substitution of domestic goods sensitive to foreign prices. With this approach we are able to replicate this dragging effect of global disinflation on domestic inflation. We also provide empirical evidence from a wide panel of countries to support the significance of such an effect.
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