Economic Research Seminar 2018

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Wednesday, December 5th

Factors that hinder the monetary policy interest rate pass-through to the rates of the financial system [PDF] (Spanish)

(José Pablo Barquero Romero and Luis Alonso Cendra)

Management of the monetary policy requires a detailed knowledge of the mechanisms through which a central bank transmits its signals to the economy. This knowledge includes the speed and extent to which changes in monetary policy instruments achieve the desired effect. More efficient transmission will be less costly for the economy in terms of stability of some macro-prices and economic growth. There is a set of micro- and macro-economic factors that influence the effectiveness of the transmission of the monetary policy. This study analyzes some of them.

Monetary policy rate pass-through to liquidity markets [PDF] (Spanish)

(Manfred Esquivel Monge)

This study estimates the transmission of the monetary policy rate (MPR) to the rates of the money markets that operate in Costa Rica (the Integrated Liquidity Market or MIL of the BCCR, and the Money Market of the National Stock Market or MEDI). Models such as structural autoregressive vectors and stimulus-response analysis are used. Evidence is found that changes in the MPR are quickly and significantly transmitted to the MIL rate, but not to the MEDI. These results support the need of implementing measures which contribute to the integration of the two existing money markets in order to improve the monetary policy transmission mechanism.

Monetary policy position in Costa Rica, an evaluation based on the real neutral interest rate [PDF] (Spanish)

(Evelyn Muñoz Salas y Adolfo Rodríguez Vargas)

Estimation of the real neutral interest rate (RNIR) makes it possible to evaluate the policy position of the monetary authority, i.e., to identify periods during which it has been contracting or expanding. This research presents a set of RNIR estimations for Costa Rica. Based on those that comply with a series of desirable characteristics, a single indicator is generated, which is used to identify the interest rate’s gap for the 2009-2018 period.


Regulatory asymmetry in Costa Rican commercial banking [PDF] (Spanish)

(José Pablo Barquero Romero)

Internal discussions, as well as discussions with agents of the local financial market and international organizations, constantly indicate that there is an “uneven playing field” (asymmetry) in the Costa Rican market between state and private banks. The purpose of this study was to carry out an exploratory analysis about this statement based on an extensive review of bank regulations to determine if such asymmetry exists. As the results signaled that such asymmetry does exist, its magnitude in financial terms was estimated, as well as its effects on credit-related activities. The study found that the identified asymmetries have a similar effect on state banks and private banks; however, the behavior of variables such as credit granted by type of entity show a significant difference.

Thursday, December 6th

Estimate of a real effective exchange rate index according to competitors [PDF] (Spanish)

(Francesca Colombo y Jorge León Murillo)

Usually, the multilateral real effective exchange rate (REER) index is used to evaluate changes in the competitiveness of the economy. Seeking to provide a more appropriate indicator for this purpose, an index of the real exchange rate with respect to competitors of Costa Rican exports in different markets is proposed. The weights reflect the relative relevance of the countries with whose exports Costa Rican exports compete and consider the relative weight of the exported product. The results show a degree of correlation with the multilateral real effective exchange rate (REER) index; however, the new index provides more information about the competitiveness of the national exports sector.

Asymmetries in the pass-through of the exchange rate in Costa Rica during the period of exchange rate flexibility [PDF] (Spanish)

(Carlos Brenes Soto y Manfred Esquivel Monge)

The pass through of the foreign exchange rate to prices in Costa Rica during the period of exchange rate flexibility is studied to verify if depreciations are transmitted at a different rate than appreciations. To do so, structural models of distributed lags are used, which include processes that generate symmetric and asymmetric data as special cases. Evidence is found that depreciations are transmitted more strongly than appreciations, and that the magnitude of foreign exchange shocks have an effect on the magnitude of the transmission.


Information stickiness and rationality of inflation expectations of economic agents in Costa Rica [PDF] (Spanish)

(Alonso Alfaro Ureña y Aarón Mora Meléndez)

According to available evidence, inflation expectations in Costa Rica cannot be categorized as rational, even in their loosest versions. Nor can they be considered adaptive, because both historical information on inflation as well as other significant macroeconomic variables are significant in explaining the series of inflation expectations. As an alternative, the model of “sticky” information is used to model inflation expectations. The results are based on information from the Monthly Survey on Inflation and Exchange Rate Variation Expectations, prepared and published by the Central Bank of Costa Rica. Although the evidence provided in this study cannot determine if these surveys are subject to information rigidity, a simulated survey is prepared based on a “sticky” information model, which can replicate the characteristics observed in the survey conducted every month by the BCCR.

Determinants of the financial account of the Balance of Payments [PDF] (Spanish)

(Jorge León Murillo y Marie Laura Meza Peraza)

To better understand the behavior of capital flows, a set of models is developed to evaluate the main determinants of the financial account of Costa Rica. This analysis emphasizes on the effect that the difference between local and international interest rates have on these flows. A disaggregated analysis of the financial account and its elements, liabilities and assets, was carried out. The model enables projecting the financial account based on the effect of macroeconomic variables on the account.

Friday, December 7th

Estimating the NAIRU in Costa Rica [PDF] (Spanish)

(Cristian Álvarez Corrales y Evelyn Muñoz Salas)

Estimating the non-accelerating inflation rate of unemployment (NAIRU), allows to approximate an employment gap; an indicator that provides complementary information about demand pressures that may be developing in the economy and, therefore, represent a risk to achieving the inflation-related goal in the short and medium term. Given the latest empirical evidence in which it is doubtful whether the relationship between inflation and unemployment continues to be valid, a recursive estimation of the coefficient associated with the unemployment gap in a Phillips Curve is carried out. The result of this analysis suggests that this relationship has been expressed with different degrees of intensity, becoming stronger since 2004.

Dynamic effects of the Costa Rican fiscal policy [PDF] (Spanish)

(Valerie Lankester Campos y Kerry Loaiza Marín)

The aim of this research is to study the dynamic responses of the economy in the face of changes in Costa Rica’s fiscal policy. For example, given an expansionary policy (increase in expenditures or tax reduction), is there a positive effect on economic growth? The three variable structural autoregressive vectors model proposed by Blanchard and Perotti (2002) was used, with quarterly data from 1991 to 2017 from the Central Bank of Costa Rica and the Ministry of the Treasury. The results seem to support the Neo-Keynesian theory: the impact on the level of production given unexpected shocks in government expenditure is positive and significant, while changes in tax revenues have a negative effect.

Determinants and dynamics of labor demand in Costa Rica [PDF] (Spanish)

(Alonso Alfaro Ureña, Santiago Campos Rodríguez y Valerie Lankester Campos)

To estimate employment-salary and employment-product elasticities, this document estimates a dynamic model for labor demand in Costa Rica using panel data at the firm level for the period 2005-2017. It additionally describes the behavior of the labor market during this period by quantifying gross employment creation and destruction by economic activity. The model suggests that the neo-classic employment theory prevails in Costa Rica: labor demand in construction is the most sensitive to changes in labor costs, and was the most affected by the 2008 financial crisis, while labor demand for manufacturing shows the longest adjustment times in the face of changes in labor costs.

Yield curve [PDF] (Spanish)

(Valerie Lankester Campos y Róger Ortega Oviedo)

Given the importance of the time structure of interest rates as an analytical tool in the economy, this study evaluates and compares the methodological approximations to estimate a sovereign yield curve for Costa Rica. Considering the characteristics of the stock exchange, criteria are defined and the results of using the Nelson – Siegel or Svensson methodology are compared. Given different adjustment measures, the latter methodological approximation provides a better result.