Publications on Bond markets
Working Paper No. 956 | May 2020This paper empirically models the dynamics of Brazilian government bond (BGB) yields based on monthly macroeconomic data in the context of the evolution of Brazil’s key macroeconomic variables. The results show that the current short-term interest rate has a decisive influence on BGBs’ long-term interest rates after controlling for various key macroeconomic variables, such as inflation and industrial production or economic activity. These findings support John Maynard Keynes’s claim that the central bank’s actions influence the long-term interest rate on government bonds mainly through the short-term interest rate. These findings have important policy implications for Brazil. This paper relates the findings of the estimated models to ongoing debates in fiscal and monetary policies.Download:Associated Program:Author(s):Tanweer Akram Syed Al-Helal Uddin
Working Paper No. 910 | August 2018
An Empirical AnalysisThe short-term interest rate is the main driver of the Commonwealth of Australia government bonds’ nominal yields. This paper empirically models the dynamics of government bonds’ nominal yields using the autoregressive distributed lag (ARDL) approach. Keynes held that the central bank exerts decisive influence on government bond yields because the central bank’s policy rate and other monetary policy actions determine the short-term interest rate, which in turn affects long-term government bonds’ nominal yields. The models estimated here show that Keynes’s conjecture applies in the case of Australian government bonds’ nominal yields. Furthermore, the effect of the budget balance ratio on government bond yields is small but statistically significant. However, there is no statistically discernable effect of the debt ratio on government bond yields.Download:Associated Programs:Author(s):Tanweer Akram Anupam Das
Working Paper No. 904 | May 2018This paper provides an empirical analysis of nonfinancial corporate debt in six large Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), distinguishing between bond-issuing and non-bond-issuing firms, and assessing the debt’s macroeconomic implications. The paper uses a sample of 2,241 firms listed on the stock markets of their respective countries, comprising 34 sectors of economic activity for the period 2009–16. On the basis of liquidity, leverage, and profitability indicators, it shows that bond-issuing firms are in a worse financial position relative to non-bond-issuing firms. Using Minsky’s hedge/speculative/Ponzi taxonomy for financial fragility, we argue that there is a larger share of firms that are in a speculative or Ponzi position relative to the hedge category. Also, the share of hedge bond-issuing firms declines over time. Finally, the paper presents the results of estimating a nonlinear threshold econometric model, which demonstrates that beyond a leverage threshold, firms’ investment contracts while they increase their liquidity positions. This has important macroeconomic implications, since the listed and, in particular, bond-issuing firms (which tend to operate under high leverage levels) represent a significant share of assets and investment. This finding could account, in part, for the retrenchment in investment that the sample of countries included in the paper have experienced in the period under study and highlights the need to incorporate the international bond market in analyses of monetary transmission mechanisms.Download:Associated Programs:Author(s):Esteban Pérez Caldentey Nicole Favreau-Negront Luis Méndez Lobos
Working Paper No. 825 | January 2015
What Should BNDES Do?
The 2007–8 global financial crisis has shown the failure of private finance to efficiently allocate capital to finance real capital development. The resilience and stability of Brazil’s financial system has received attention, since it navigated relatively smoothly through the Great Recession and the collapse of the shadow banking system. This raises the question of whether it is possible that the alternative approaches followed by some developing countries might provide an indication of more stable regulatory approaches generally. There has been much discussion about how to support private long-term finance in order to meet Brazil’s growing infrastructure and investment needs. One of the essential functions of the financial system is to provide the long-term funding needed for long-lived and expensive capital assets. However, one of the main difficulties of the current private financial system is its failure to provide long-term financing, as the short-termism in Brazil’s financial market is a major obstacle to financing long-term assets. In its current form, the National Economic and Social Development Bank (BNDES) is the main source of long-term funding in the country. However, BNDES has been subject to a range of criticisms, such as crowding out private sector bank lending, and it is said to be hampering the development of the local capital market. This paper argues that, rather than following the traditional approach to justify the existence of public banks—and BNDES in particular, based on market failures—finding an effective answer to this question requires a theory of financial instability.Download:Associated Program:Author(s):