Celso José Costa Junior

We study how the governance of macroprudential decisions affects financial stability when fiscal preferences favor preserving credit transmission. In a reduced-form policy problem, fiscal influence weakens prudential tightening and its response to fiscal expansion. Linking this choice to financial-imbalance dynamics yields a unique influence threshold beyond which mean reversion disappears. Stronger fiscal expansion and greater financial persistence lower this threshold. Even below it, fiscal influence raises the stationary variance of financial imbalances, connecting regulatory governance to risk amplification. A committed debt-triggered prudential floor can preserve contraction under admissible policy bounds.

We study how sovereign risk weights shape monetary-policy transmission to bank credit in an emerging-market small open economy. In a New Keynesian DSGE model calibrated to Brazil, a representative bank holds long-duration government bonds and floating-rate debt indexed to the Selic rate while facing a regulatory capital floor. A monetary tightening lowers long-bond prices, generating mark-to-market losses that erode bank capital. With low sovereign risk weights, these losses reduce capital without commensurately reducing risk-weighted assets; once the floor binds, the bank contracts private credit.The central result is an activation frontier in sovereign exposure and the effective capital buffer. On its slack side, tightening has muted balance-sheet effects; on its constrained side, credit contracts sharply, by an order of magnitude more under zero than under full sovereign risk weights. Using supervisory data, a direct-securities upper bound places Brazil near the threshold, while a repo-inclusive proxy lies inside the constrained region. Selic-indexed debt attenuates the channel by reducing duration exposure. For the same cumulative disinflation, front-loaded tightening generates larger losses than gradual tightening, especially when bank portfolios are tilted toward long-duration debt.In a two-constraint extension, bank-capital stress makes the borrower collateral constraint more likely to bind and more persistent. Deleveraging, however, reduces risk-weighted assets and partially relaxes the bank floor. The constraints are complementary in the incidence and persistence of borrower collateral stress, but their interaction attenuates peak credit and output losses. The mechanism requires neither sovereign default nor risk mispricing; the sovereign risk weight remains the key policy margin.

We study how sovereign risk weights shape the transmission of monetarypolicy to bank credit in an emerging-market small open economy. In a New KeynesianDSGE model calibrated to Brazil, a representative bank holds long-duration nominalgovernment bonds and floating-rate government debt indexed to the central bank'spolicy rate (the Selic rate), while facing a regulatory capital floor. A monetarytightening lowers the price of long bonds, generating mark-to-market losses thaterode bank capital. When sovereign debt carries a low risk weight, these losses reducethe numerator of the capital ratio without commensurately reducing risk-weightedassets; once the floor binds, the bank contracts private credit.The central result is an activation frontier in the space of sovereign exposureand the effective capital buffer. Below the frontier, the same tightening has mutedbalance-sheet effects; above it, credit contracts sharply, with a contraction an orderof magnitude larger when sovereign debt is zero-weighted than when it is fullyweighted. Mapping supervisory balance-sheet data into the model, direct securitiesholdings place the Brazilian banking system near the activation threshold, while abroader repo-inclusive exposure measure places it inside the constrained region. Twofurther results sharpen the mechanism. A larger share of policy-rate-indexed debtattenuates the channel by reducing duration exposure. For the same cumulativedisinflation, a front-loaded tightening produces larger duration losses and a strongercredit contraction than a gradual one, especially when the bank portfolio is tiltedtoward long-duration debt. The mechanism does not rely on sovereign-risk mispricing,distorted beliefs, default shocks, or disaster shocks. The key policy margin is thesovereign risk weight itself rather than the fine design of a smooth macroprudentialrule.

Should macroprudential policy respond to fiscal conditions and, if so, to which fiscal financial state variable? We study this question in a medium-scale DSGE model with heterogeneous households, banking frictions, and an occasionally binding housingcollateral constraint. In a benchmark architecture in which patient households are the residual holders of government bonds, fiscally contingent debt-aware macroprudential policy dampens leverage-driven amplification, lowers GDP-scaled present-value spending multipliers, and raises welfare.Our main result emerges in the sovereign–bank architecture, where banks hold sovereign bonds and fiscal deterioration affects private intermediation through bank sovereign exposure. In that environment, reacting to aggregate public debt is too coarse: it worsens collateral dynamics and lowers welfare. By contrast, a nexus-based rule conditioned on sovereign exposure relative to bank capital improves financial stabilization, mitigates collateral stress, lowers fiscal multipliers, and raises welfare. The main lesson is that debt awareness is not architecture-invariant: once sovereign risk is intermediated by banks, the relevant macroprudential target is the sovereign–bank nexus rather than aggregate public debt.

Fiscal policy is often one of the economic Achilles heels of emerging markets. Therefore, adequately modeling it becomes crucial to understanding the effects of shocks impacting this class of economies. This paper seeks to make a new proposal on how to model an emerging market such as Brazil, with a particular emphasis on the fiscal side. To that end, we build a medium-scale open-economy DSGE model, enriched with a detailed government structure and a comprehensive array of fiscal tools. We then compare the effects of some relevant shocks to those generated by the Central Bank of Brazil’s DSGE workhorse model, SAMBA. Additionally, we analyze several fiscal structural reforms that have been suggested or implemented within the last decade. Our results show that our model does a good job of reproducing the movements of key economic variables, shedding light on the fiscal dynamics and their interactions with monetary policy and external shocks. Introducing Stone–Geary (subsistence) preferences for non-Ricardian households strengthens empirical realism without altering our main conclusions.

Utilizando um modelo DSGE, este trabalho procura estimar a taxa de juros natural da economia brasileira no período 2000T1-2018T4, além de avaliar o comportamento do Banco Central durante o período. Utiliza-se uma curva estimada da taxa natural de juros para avaliar a conduta da política monetária. A taxa de juros natural declinou de 2002 a 2012, quando se elevou até meados de 2016, permanecendo estável a partir de então. O hiato da taxa de juros aumentou em Meirelles, caindo até meados de Tombini. Apresentou uma tendência de aumento até o final, caindo novamente com Goldfajn.

This paper aims to shed additional light on the existence of opportunistic and partisan political-business cycles in the Brazilian economy over the 1996-2016 period. To that end, it relies on two different approaches: (I) an Oaxaca model in the spirit of Blinder and Watson (2016); and (II) a DSGE model where fiscal and monetary policies are treated as political- regime dependent (Milani, 2010). By and large, our results from both exercises show that there existed an opportunistic behavior by all the governments studied as regards fiscal policy, and that political ideology played a role in shaping macroeconomic policies in some of the administrations that ran the country within the time span considered. Specifically, as our DSGE exercise illustrates, President Dilma Rouseff’s fiscal management differed significantly from previous governments’. In ad­dition, we do not find any evidence of political business cycle of any type when it comes to monetary policy, in line with what the consensus in this literature states for the case of Brazil.

Resumo Este trabalho analisa se a utilização de crédito direcionado (subsidiado) ao investimento pode agravar a dominância fiscal. Para tanto, utiliza-se um modelo novo-keynesiano com subsídio na aquisição de bens de investimento para firma produtora de bens de capitais. Os resultados apresentam que o aumento no subsídio induz o governo a utilizar imposto inflacionário para ajustar seu orçamento (dominância fiscal), contudo, esse efeito é de curtíssimo prazo, na sequência, um forte corte nos gastos correntes do governo ajusta o superávit primário levando a economia à recessão.