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Seminars 2020

Economic Research Seminar 2020​

Monday, November 16th 

Accounting for incomplete pass-through of monetary policy: the Costa Rican banking sector with imperfect competition [PDF] (Spanish)

Authors: José Pablo Barquero Romero, Kerry Loaiza Marín and Luis Alfredo Mendoza Fernández
Speaker: Kerry Loaiza Marín

In a country with inflation targeting, such as Costa Rica, estimating the pass-through from the monetary policy rate (MPR) to the interest rates offered by commercial banks is crucial in order to define the effectiveness of this policy instrument. Therefore, it is necessary to model the inherent characteristics of its financial market; imperfect competition, dollarization, regulatory asymmetry and the bank constitution, public or private.

The pass-through dynamics, magnitude and speed, are estimated with a generalization of a Cournot-type competition model with adjustment costs, and microdata on loans and deposits.

In general, transmission asymmetries are identified due to differences in market shares, regulatory imbalance and the degree of dollarization. These elements reduce the effectiveness of the monetary policy interest rate (TMP).

See presentation (Spanish)

Heterogeneous and persistent formation of inflation expectations [PDF] (Spanish)

Author: Carlos Segura Rodríguez
Speaker: Carlos Segura Rodríguez

This study investigates which forecasting method (rational, adaptive, last observed inflation or inflation target) portrays more accurately the formation of inflation expectations of the respondents of the BCCR’s Monthly Survey of Inflation Expectations and Exchange Rates. As proposed by Branch (2004), agents are assumed to decide between methods based on forecasting errors from the recent past. The probability of use of each method is estimated with a Probit model. Since the informants are surveyed on multiple occasions, a parameter to capture temporal dependence in responses is included.

It is concluded that agents, in Costa Rica, form inflation expectations with low required information methods, which is conflicting with the rational forecasting method. Therefore, it is not advisable to use this inflation expectations indicator with other methodologies that assume rational expectations. In addition, methodological changes in the way the sample is selected have influenced the expected value for inflation. Consequently, intertemporal comparisons using this indicator are not advised.

See presentation (Spanish)

Tuesday, November 17th 

Technological differences in Costa Rica [PDF] (Spanish)

Authors: Carlos Chaverri Morales and Alberto Vindas Quesada
Speaker: Alberto Vindas Quesada

This paper explores the data for Costa Rica as part of the project “Latin America: Capital, Labor, Energy, Materials and Services” (LA-KLEMS), given that the KLEMS databases make it possible to relate measures of economic growth, productivity, job creation, capital formation, and technological advances to specific economic activities. Its level of disaggregation was not available for the country until now, and it is the result of several years of work by the Macroeconomic Statistics Department of the Central Bank of Costa Rica.

With a production model which considers different economic activities, types of work and of capital, the main objective of the study is to estimate technological differences. Preliminary results show that capital and work are substitutable, while types of work (according to educational level) have a low degree of exchangeability.

See presentation (Spanish)

Regionalization of the Costa Rican input-output matrix [PDF] (Spanish)

Authors: Carlos Brenes Soto, Santiago Campos Rodríguez, Kerry Loaiza Marín
Speaker: Carlos Brenes Soto

Input-output matrices are tools used in economic analysis to characterize production and forecast the impact of public policy or other shocks, for the economy. However, the aggregate tool is of little or no use when studying interregional trade.

With administrative data from the BCCR’s Registry of Economic Variables (REVEC), some detailed statistics of the national production and trade network, and the implementation of a bilateral cantonal trade model, this document describes the main aspects of the cantonal regionalization process given by the 2017 input-output matrix prepared at the Central Bank of Costa Rica (BCCR). Also, the impact of the COVID-19 pandemic and the relevance of cantons and economic activities in spreading its effects are analyzed.

See presentation (Spanish)

Thursday, November 19th 

Interdependence between monetary and fiscal policy: the case of Costa Rica [PDF] (Spanish)

Authors: Valerie Lankester Campos and Catalina Sandoval Alvarado
Speaker: Catalina Sandoval A.

This study analyzes the interdependence between monetary and fiscal policy in Costa Rica during the period 1991-2019, using three methodological approaches. Firstly, to determine if fiscal dominance exists, a vector autoregressive (VAR) model is used to answer if the government’s primary balance is exogenously determined by public liabilities.

Secondly, the reaction function of the Central Bank is estimated to analyze whether the primary deficit and public debt have a significant effect on the monetary policy rate. Thirdly, the long-term relationship between inflation and fiscal deficit is evaluated using an autoregressive distributed lag (ARDL) model with error correction.

For all three cases, results suggest that fiscal dominance exists. Specifically, there is evidence of unidirectional causality in the Granger sense of the primary balance on public liabilities, while in the case of the reaction function, it was found that the primary deficit and growth of public debt have a significant impact on the monetary policy rate. Finally, fiscal deficits influence the inflation in the long run.

See presentation (Spanish)

Adequate and optimal level of net international reserves for Costa Rica [PDF] (Spanish)

Author: Esteban Méndez Chacón
Speaker: Esteban Méndez Chacón

This research assesses the level of Costa Rica’s international reserves from the first quarter of 2015 to the first quarter of 2020, using both, the adequate reserves and the optimal reserves approach.

For the first approach, the adequate reserves, the following indicators are considered: imports, monetary aggregates, external debt service, the Wijnholds and Kapteyn (2001) measure, and the Adequate Reserves Metric of the International Monetary Fund (IMF).

For the optimal reserves approach, a model which considers an economy with deposits in foreign currency, terms of trade, and endogenous probability of balance of payments crisis is resolved.

As a general conclusion, the levels of international reserves in Costa Rica are adequate given on the five estimated indicators. Likewise, reserve levels are close to the optimum, while the gap between optimal and effective reserves has not been over two percentage points of GDP in the time frame considered.

See presentation (Spanish)

Friday, November 20th 

Firms performance and wage inequality [PDF] (Spanish)

Authors: OECD Team, with the collaboration of Valerie Lankester Campos and Catalina Sandoval Alvarado
Speaker: Catalina Sandoval A.

With employer-employee data harmonized between fourteen OECD countries, this research analyzes the effect of the firms’ performance on wage inequality. Its main finding is that, on average across countries, changes in the dispersion of the average wage between companies explains about half of the changes in overall wage inequality. Two-thirds of these changes are explained by changes in the productivity-related wage premium, which reflects that some companies pay their workers above the common market wage. The other third of the changes is be attributed to changes in the composition of the workforce.

See presentation (Spanish)

The effects of multinational corporations on workers: evidence from Costa Rica [PDF] (Spanish)

Authors: Alonso Alfaro Ureña, Isabela Manelici, José P. Vásquez
Speaker: Alonso Alfaro Ureña

This investigation estimates the effects of foreign multinational corporations, MNCs, on employees. To do so, micro data on employer-employee and firm-firm for Costa Rica, are coupled with an instrumental variable approach.

Given the results, it is concluded that there is a direct salary premium of nine percent from working for a MNCs, which is due to offering above-market wages, rather than compensation for undesirable working conditions. Lastly, the indirect effects of MNCs on workers from national companies are also studied.

See presentation (Spanish)