contains research papers authored by employees of the Banco Central de Costa
Rica (BCCR).It includes documents
coauthored by researchers from the Department of Economic Research and
individuals affiliated with other research institutions in Costa Rica and
abroad, as well as papers commissioned by the BCCR to third parties.
presented here contributes to the analysis and advisory done by the Economics
Division in areas related to monetary policy, exchange rate regime and the
financial sector.It also aims to
improve the understanding of the Costa Rican economy.
In this paper we construct three leading indicators that anticipate turning points of the economic activity in Costa Rica. Indicators derived average leads between 7 and 12 months in relation to the reference variable.
One of the main applications of the input-output matrices is the study of the productive structure of the economy. One of the most successful applications of this subject is the identification of the most important activities within the economy, which is critical to developing public policies for boosting economic growth in the medium term.
The production function is estimated for Costa Rica using an endogenous technology approach. The properties of the estimated function are studied, e.g. returns to escale, substitution elasticities, and factor intensity (SP)
A quarterly indicator of employment in Costa Rica is estimated for the 1991-2000. The aim is to substantially improve analisis of the economy's situation, además as well as complementing short-term statistics required international financial institutions (SP)
The relationship established with the Okun law is estimated here for Costa Rica (period 1991-2000), whereby there is a negative correlation between the unemployment rate and the real output growth (SP)
Several estimates on Costa Rica's potential output , using statistical filters and structural models. Results are analyzed in light of an estimate of a Phillips curve and the relation between the output gap and its deviations (SP)
A production function is estimated for Costa Rica's economy, based on information for the period 1978-2010, with the MCOD methodology. The production factors used were physical capital and labor. Additionally, an estimate was made on the human capital factor, whereby labor was adjusted according the the population's average educational level. (SP)
The main aspects of the Costa Rican economy between 1991-2012 are summarized. This information is necessary to form an idea of the economic cycles based on volatilities and co-movements of important macroeconomic variables. Five complete economic cycles were identified, as well as their duration, their phases, and common factors that explain the behavior of the cycles.
This paper documents the process of structural transformation in Costa Rica during six decades starting in 1950. It is widely documented that countries that grow in terms of income have a shift of employment away from the agricultural sector to the manufacturing and services sector. This same pattern can be observed in Costa Rica. However, this process has some peculiarities that will be discussed.
Some conceptual aspects about time series and extraction methods are summarized here. Topics are presented in a simple, user-friendly manner, and some bibliographical references are included for consultation for those wishing to study a topic in more depth (SP)
A summary of some of the most common issues found with the ordinary least squares, such as autocorrelation, multicollinearity, and heteroscedasticity, as well as some special topics such as integration, cointegration, error correction models, cointegration according to the Johansen approach, autoregressive vectos, and the Kalman filter. (SP)
Consequences of adopting confidence levels as a pattern for decision making are analyzed in depth (type I error), with the potential for error by accepting as being good an actually false hypothesis (type II error).
In this paper, we calculated the potential output for the Costa Rican economy. First, we applied several di_erent methods to calculate this non-observable variable, such as the Beveridge-Nelson decomposition, Hodrick-Prescott _lter, production function, Kalman _lter, and SVAR. Then, we combined the results of these methods using Bayesian Model Averaging (BMA) and a Phillips curve. Finally, we obtained optimal weights for each estimated potential product and, estimated an indicator of the potencial output series.
When working with large amounts of data in Excel, it may be useful to have a quality control system for numbers so as to detect any potentially abnormal values. Some of these are suggested in this document (SP)
The TERROR command from TRAMO SEATS software is studied here, to illustrate the potential of this application in the context of systematization in data auditing, thereby improving the quality of information used (SP)
An indicator of the world's production volume relevant for Costa Rica's economy is presented. This indicator provides a new proxy variable on the trend and variability of the international GDP, so as to help explain the behavior of exports (SP)
Smoothening parameters specifically estimated for Costa Rica are presented in this paper, for use with the Hodrick-Prescott filter. The method of Marcet and Ravn (2003) was applied, with data up to 2010 (EN)
The main Bayesian theory postulates are discussed, including examples of how they are applied in an exchange rate policy context where the subjective perception of each expert may produce different results (SP)
Some numerical solution algorithms are explained that are applicable to non-linear equations and equation systems. Implementation of some of them with the software Mathematica is presented in an annex (SP)
We assess the utility of mixed-frequency models to forecast the quarterly growth rate of Costa Rican real GDP. To that end, we estimate bridge and MiDaS models using information of the IMAE, we compute forecasts for several horizons and evaluate their performance.
The effectiveness of monetary policy under inflation targeting scheme proposed by the Central Bank of Costa Rica is based in the correct and timely forecast of inflation in order to design the best monetary policy actions. The purpose of this study is to develop a complementary tool to forecast inflation using a Bayesian approach. To that end, we estimate the methodologies of "Bayesian Model Averaging" and "Weighted Average Least Squares". This forecast allows expanding and complementing the analysis actually estimated with the Macroeconomic Quarterly Projection Model (MQPM) of the Central Bank of Costa Rica. From the results of this evaluation, we show that for monthly data and forecast horizons from 1 to 12 months, you may find forecast by a Bayesian process that have greater predictive performance than the autoregressive model.
Slide presentation. Foundations of the main cointegration tests are explained, and an estimate of cointegration relations, in addition to some exogeneity tests. Examples used were taken from all contents (SP)
The aim of this document is to study the major determinants of BCCR's international monetary reserves (IMR), and to estimate a useful econometrics specification to project IMR evolution over the medium term (SP)
Direct and indirect seasonal adjustment methods are applied to foreign exchange earnings and outflows for the period 1983-1997. The aim is to determine whether it is preferable to seasonally adjust the data once aggregated, or by component. Moroever, the document examines whether individual series have a seasonal component.
Updates previous research about seasonality patterns in the exchange market. Allows identifying patterns in five daily time series: weighted average exchange rate negotiated in Monex, transactions carried out in Monex, and demand, supply, and net supply of dollars by intermediaries in negotiations "over the counter".
Characteristics of the exchange rate fund monetary system are presented in this document, including the pros and cons of this fixed local currency convertibility system fully backed up with foreign exchange (SP). International examples are used for illustrating purposes.
This paper estimates the value of the current account deficit that is feasible with financed capital flows medium and long term. A guide to economic policy is that this value corresponds to 5.3% of GDP, which is equal to the average value observed during the period 1999Q1-2015Q3 for the aggregate of public and private capital flows.
In this study, Costa Rica's import price indices are compared and directly calculated, as well as the US Producer Price Index (USPPI). It is intended to validate the USPPI as an approximation to the former, and to contrast it with or build the new indicators.
Results of the competitiveness matrix and their implications for Costa Rica's economy are analyzed. A Competitive Analysis of Nations (CAN) was applied, this being a computing instrument and international trade database (SP)
This document describes the differences between the effective real exchange rate and the equilibrium effective real exchange rate. Their differences, appropriate uses and common mistakes, as well as the BCCR approach towards them
The main vulnerabilities of Costa Rica's economy are analyzed in this document, where an early detection instrument for exchange rate crises is proposed. Watching for detonants of critical exchange rate pressures is recommended, as well as striving for discipline procurar disciplina (SP)
A current account model- (Glick & Rogoff and VAR models) is presented, establishing that an investment backlog, the primary result of government, the terms of trade, the international exchange rate, and the real exchange rate all have significant effects on the evolution of the country's current account.
Characteristics and concerns about a potential dollarization in any given country are discussed. The likely consequences --particularly in fiscal and monetary terms-- of adopting such a system, both favorable and unfavourable, are analyzed as well (SP)
VAR models are applied for the period 1982-1995 to assess the effects of trade external shocks (foreign demand and international prices) as well as financial ones (US interest rate) on Costa Rica's production and real exchange rate (SP)
After abanding the crawling peg regime in october 2006, the Costa Rican economy has experienced two abrupt depreciation episodes, in 2008 and 2014. The analysis of these two episodes shows that the observed depreciation is related to the increase of inflation, interest rates, and the lower economic growth. Within the labor market the depreciation episodes are related to lower employment and lower real wage.
We estimate the current account deficit (DCC) consistent with long-term capital flows. The capital flows we consider were foreign direct investment (FDI), FDI more public capital, and Public capital plus private capital
Supply and demand variables were used for this estimate. The supply factors were included using an approach whereby an increase in the country's production capacity results in growth-driven exports. The demand factors are summarized as measures involving relative prices and income for the rest of the world.
Estimate for Costa Rica of the real equilibrium exchange rate --period 1991-2006-- using the Behavioral Equilibrium Exchange Rate (BEER) model, where relevant macroeconomic fundamentals for Costa Rica's economy are considered for this variable.(SP)
Two import estimates are presented --one for regular imports without hydrocarbons, and the other one for regular imports without hydrocarbons and without any special rules or regulations, both of them for the period 2000q1- 2011q3.
One of the oldest and most interesting questions in the economic literature is how to quantify the gainsfrom trade. Recently, Costinot & Rodr__guez-Clare (2013) (CRC) developed a methodology that uses the World Input Output Database (WIOD) to compute this value for a list of countries. Costa Rica has never been part of this database given the lack of appropriate data. However, with the publication of a new Input Output Table for Costa Rica, the Foreign Trade Ministry (COMEX) was able to develop a domestic version of the WIOD that includes the country. This allows for counterfactual exercises in which we compare the current situation with autarky and other average tari_ levels. As CRC show, this can be done using di_erent productive structures and competition schemes in the economy. The results can provide valuable information on how much a small open economy like Costa Rica's can bene_t from international trade, and what are the di_erences in the results when compared to similar countries.
Analysis on the day-to-day behavior in terms of trend and volatility of the nominal exchange rate in both retail and wholesale markets during 2008, 2009, and the beginning of 2010. Financial analysis tools such as MACD, ATR, and RVI are used (SP)
Analysis on inter-temporary sustainability of the current account deficit based on accounting identities. The estimate is based on a study on the behavior of the balance of payments' components, and causal relations between them are not considered (SP)
Estimate for Costa Rica (1991-2005) on the real equilibrium exchange rate using the Behavioral Equilibrium Exchange Rate (BEER) Model, which considers macroeconomic fundamentals, and an estimate of dynamic ordinary least squares (SP)
A pass through coefficient is estimated, and some factors pointed out in other empirical studies as potential determinants are discussed, e.g., the output gap, exchange rate deviation vis-á-vis equilibrium, the economy's opening, and a backlog in inflation (SP)
Pass through coefficients are estimated for the short and long term for the exchange rate on the price of tradable and non-tradable goods in Costa Rica's economy from 1991 to 2002. Evidence is presented on a unilateral precedence of the exchange rate over inflation in both groups (SP)
This paper estimates the probability of a sudden current account correction for Costa Rica, through a survival model approach using data panel. We find that the estimated probability of a current account reversal decreases when: i) the five years ahead real-growth increases, ii) the external situation of similar countries improves, iii) the dependency ratio increments, iv) the world's GDP percentage for which the country have signed a trade agreement increases, v) reserves accumulation accelerates and vi) the institutional framework becomes more democratic. On the other hand, an increase in the total factor productivity (TFP) growth 5-year ahead raises likelihood of a reversal. The effect of capital controls on the probability showed an ambiguous behavior.
It analyses the interest rate differential as the possible main factor behind the capital inflows experienced by Costa Rica during the second semester of 2012. For this purpose, a panel data model for interest rate differential is estimated taking into consideration an array of relevant macroeconomic variables.
Theoretical models and experiences from other countries to explain the (dis)advantages of adopting an exchange rate band system for Costa Rica are presented. Measures required for this system's practical implementation are examined (SP)
A potentially sustainable current account deficit is estimated for Costa Rica's economy using different methods. It is concluded that the deficit for every year observed since the mid '80s has been sustainable.
Determinants of sovereign spread in Costa Rica are analyzed using macroeconomic variables derived from theory. A quarterly panel data set from 2002 to 2014 is used to estimate an Arellano-Bond specification model. Additionally, a VAR model is estimated to identify transmission effects of shocks in risk perception in Latin America and Central America on Costa Rica's sovereign spread. Macroeconomic fundamentals associated with fiscal and external imbalances, local inflation and domestic interest rates explain EMBI spread of Costa Rica and of the countries in the sample. External factors related with international stock market volatility and global risk perception also have a role on EMBI spread determination. Furthermore, there is a contemporaneous and positive effect of a perturbation in Latin American spread on Costa Rica's EMBI spread.
Estimate on the optimum amount of international reserves BCCR should have. This study is based on a model by Ben-Bassat and Gottlieb (1992), whose main idea is to minimize the social cost of keeping such reserves. The probability of crisis is viewed as an endogenous factor (Gottlieb) (SP)
The nature of an exchange rate scheme based on a fully dollarized economy is presented, including their differences, andvantages, and disadvantages vis-á-vis the rest of countries, and the minimum conditions a country should have to adopt it. The feasibilty of adopting it in Costa Rica over the short and the medium term is discussed (SP)
A medium-term forecasting model is used in this paper to estimate Costa Rica's headline inflation, using disaggregate data from the components of the Consumer Price Index (CPI). The period used for the estimate is characterized by a process of declining inflation.
The cost in terms of well-being associated with the reduction of the inflation rate in CR is identified and compared to expected earnings. Costs are measured using the consumer surplus approach, for which a function of cash demand is estimated. Earnings are quantified by deducting the expected improvement in the production of the economy due to inflation reduction.
In this study we carry out the first formal estimation of the social cost of transactions in Costa Rica. The estimation considers transactions in cash and cards, covers the 2008- 2011 years and is based on the methodology applied by Bergman, Guibourg and Segendorf (2007) for Sweden, with adaptations specific for Costa Rica.
Prepared upon request of the IADB, presented in the seminar-workshop: "Costa Rica in transition towards inflation targeting: challenges and limitations", organized by the World Bank in San José on November 5, 2011. This provides an overview of the context in which the BCCR Board of Directors made the decision to start a migration process towards an explicit inflation target scheme. It also presents important facts and amendments as of June 2012.
A null hyphotesis on whether a structural change ocurred in the interannual inflation rate ocurred is assessed. From this date forward, one-digit rates have been consistently recorded --an outstanding outcome in the country's recent inflatinary record (SP)
Obtaining empirical evidence on whether monetary policy results in asymmetrical effects on the extent of economic activity. (SP)
E4, E5, C2
As part of the preparation and transition process to an inflation target regime in the year 2011 the Central Bank of Costa Rica (BCCR) established the Monetary Policy Interest Rate as its main monetary policy instrument, since then it has become of institutional interest to assess the effectiveness of this instrument to influence the remaining interest rates in the financial system. This is why this paper studies the Central Bank of Costa Rica monetary policy interest rate pass through to the interest rates of the financial system from January 2000 until July 2013.
El presente trabajo elabora un indicador de tasa de política monetaria (ITPM) del Banco Central de Costa Rica a partir del año 2000 en adelante. Para la construcción del indicador se toma como referencia la definición de la tasa de política actual siendo ésta una tasa de corto plazo.
Six credibility indices of the monetary policy of the Banco Central de Costa Rica are presented as it transitions towards the Inflation Target. The indices, designed by Cecchetti and Krause (2002), Mendonça (2004), Sicsú (2005), Nahon and Meurer (2009), and a new index proposed in this study, were calculated based on the Monthly Survey on Inflation and Exchange Rate Variation Expectations.
A measure of inflation of business partners is proposed, based on moving weights which are constantly adjusted according to the relative importance of the bilateral trade between Costa Rica and each partner with respect to total trade.
Choosing a single-variable model to project inflation (SP)
Los resultados muestran que los cambios en la tasa de política monetaria se reflejan primeramente en las tasas pasivas de los bancos comerciales y luego de forma indirecta sobre las tasas activas. Con respecto a la diferencia entre bancos estatales y privados, existe evidencia que los estatales reaccionan primero.
Estudia el grado de persistencia inflacionaria y las rigideces de precios, a nivel desagregado y agregado, de los artículos del IPC en los subíndices de Bienes-Servicios y No regulados-Regulados. La evidencia apunta a que las variaciones de precios artículos regulados y servicios poseen mayores grados de persistencia.
During the first quarter of 2014, the Costa Rican colon experienced the strongest depreciation of the last 5 years. One of the main consequences was an increase in the inter-annual ination rate, beginning on March 2014. Considerable diferences in the ination rate were observed in the components and groups of the Consumer Price Index. The main purpose of this paper is to quantify the exchange rate passthrough elasticity towards the ination rate of each group. In order to achieve this purpose, I estimated vector autoregressive systems (VAR) for each group and used the accumulated responses of prices to an exchange rate impulse. For the 2000-2014 period, I measure a pass-through elasticity of 0,219 for the CPI. Transportation and Entertainment and Culture are the two sector most afected by exchange rate variations
Results for Costa Rica of isolating the public deficit component induced by the situation, thereby making an approximation on the part that is thought to be specifically the result of fiscal policy. (SP)
The competitiveness of intermediares constituting the National Financial System (NFS) as a whole is analyzed, while also assessing ways to promote a greater competition within the system. The degree and temporary behavior of the NFS structure is measured for the period from Jan 1995-March 2009. (SP)
Key topics on the market structure, rivarly, business strategies, and behavior according to the theory of firm for the case of the banking industry are presented . Based on a presentation by Dr. Mariano Rojas, in the context of a seminar offered at CEMLA. (SP)
The sensitivity of bank intermediaries response is studied, considering two of the most significant risks they face -- liquidity and credit-- in the face of changes in the macroeconomic environment. Thus, vulnerability of the banking system is examined in the face of these changes.(SP)
This document aims to analyze the advantages and disadvantages of creating a deposit insurance system vis-á-vis the implicit protection system. The feasibility of creating this system is also analyzed specifically for Costa Rica (SP)
This document is a first attempt to identify homogeneous groups of financial entities based on the traditional ranking criteria. This is a step prior to designing and implementing a system of early warning indicators . (SP)
Measures being adopted by the international community to manage systemic risk produced by systemically important institutions are compiled and discussed here, particularly those entities that due to their size may produce harmful effects on the entire society if they go bankgrupt (SP)
Key macroeconomic and microeconomic factors influencing financial crises are described in this document, along with major sources of vulnerability of the local system and the more desirable characteristics of early warning indicators to help prevent a crisis in the banking sector (SP)
Factors that determine the financial intermediation margin of banks in Costa Rica for the period 1994-2011 are examined in this document. Special attention is paid to those factors that may be impacted by BCCR through monetary policy. (SP)
The ethical risk associated to the use of short-term external indebtedness by financial intermediaries is addressed in this document. The various factors influencing this phenomenon are analyzed with a simple economic/mathematical model are analyzed, while also proposing economic policy measures.
This document examines the magnitude, evolution and causes of a growing preference for foreign currency financial assets as store of value (asset replacement), and to a certain extent as a means of payment (cash replacement) in Costa Rica . (SP)
The main purpose of this study is to examine whether there is a relationship between the interest rate reflecting the tone of the monetary policy, and the range of passive and active interest rates found in the financial market. (SP)
The impact that the creation of a deposit insurance system would have on net exposure of liabilities of financial intermediaries is assessed in this document. To this end, several liability coverages are estimated, and several scenarios are analyzed. (SP)
The main purpose of this study is to establish whether or not there is a market discipline in Costa Rica's banking system-- which may be a signifiant proof prior to the potential creation of a guarantee fund for bank deposits.(SP)
The degree of competition in Costa Rica's banking industry is analyzed based on Bresnahan's model (1982), whereby information is extracted from disaggregated data so as to measure the discrepancy between the demand function and the marginal income function of the banking system. (SP)
In this paper we present the Index of Financial Stress for the Costa Rican economy constructed using weakly data from 20 variables of the Costa Rican financial system. The method of aggregation used is principal components where financial stress is assumed to be the main driving force behind the co-movement observed between these variables.
A discriminant analysis is presented to determine, based on a series of indicators, whether it is possible to "discriminate" if an observation belongs to a specific group within several existing groups. Aditionally, ranking functions are estimated for new cases. (SP)
Market power as a determining factor of the margin of financial intermediation for the Costa Rican banking system between 2000-2012 is examined. The study is based on a theoretical model for profit maximization for a representative bank. One of its main findings is that market power in the national banking system has been taken into consideration by entitties when they determine their interest rates.
Markets and financial assets are defined and characterized in this document. Some determinants are mentioned on the rise of financial innovations, while also describing the ones thought to be more relevant, as well as their potential use in emerging markets. (SP)
An attempt is made to develop a simple theoretical model on the likelihood of having a price bubble. A model similar to Cagan's is used, where the solution of rational expectations does admit the possibility of a bubble . (SP)
This document is mainly aimed at obtaining a diagnostic analysis on the National Banking System. The main tool was a survey on the bank population, and several aspects relating to strategy and competition were addressed. (SP)
Proposed indicators and follow-up methodologies are presented in detail for macroeconomic and financial fields. A proposal is made to monitor a whole set macroeconomic indicators and a vulnerability index. Moreover, a set of 19 financial ratios of commercial banks are examined.
The main purpose of this study is to identify some variables in the environment affecting financial indicators of delinquency and liquidity in Costa Rica's banking system, as well as to quantify their effect, and establish the backlog with which such an effect comes when faced with changes in certain environmental variables. (SP)
An estimate is made to determine whether or not the explicit creation of a deposit insurance in Costa Rica is feasible. The main characteristics of this protection system are also presented.(SP)
represent exclusively the views of the authors and are not necessarily those
of the Board of Directors of the BCCR. Therefore, all errors and
opinions are the sole responsibility of the authors and not of the BCCR nor
authors of the papers are the copyright holders of each document. The
information contained in them can be used freely. We beg you to make
appropriate use of it: do not alter any portion of it, and cite the documents
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