### Browsing by Author "Sáenz-Castegnaro, Manrique"

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- Análisis de variación de reservas internacionales para Costa RicaThe purpose of the present document is to analyze the main factors that determine Central Bank foreign reserve accumulation in Costa Rica and to estimate an econometric specification to forecast the foreign reserve stock in a two-year span. The foreign reserves stock represents an important variable for the Central Bank of Costa Rica because it allows it to defend the present exchange rate regime of crawling-peg. Our results indicate that the interest rate premium, the real interest rate and the real exchange rate are important factors in the determination of the accumulations of foreign reserves. In addition, official capital flows have a positive effect on foreign reserve accumulation, while excess real money supply has a negative effect. The effect of an increase in interest rate premium on foreign reserves is smaller when it is produce by an increase on domestic interest rates, than when it reflects a decrease on the international interest rate. We set forth several hypotheses to explain this result. In within sample forecasts the model performs well, with a good fit and a 70% accuracy in the direction of the variations in foreign reserves.
- La Curva de Phillips en Costa RicaMuñoz-Salas, Evelyn; Rojas-Sánchez, Mario Alfredo; Sáenz-Castegnaro, Manrique; Tenorio-Chaves, EdwinThe main objective of this investigation is to estimate an Expectations Augmented Phillips Curve function with the error correction mechanism, applying the Engle and Granger’s two step method. This exercise was done before with annual data (Rojas, 2002) but the parameters were estimated with low precision. In this occasion, the model is estimated with quarterly data, for the period 1991.01 to 2001.04, with an econometric technique that restricts the long run behavior of the endogenous variable to converge to their cointegrating relationships (static) while allowing for short run adjustment dynamics. The main results allow us to infer that more than 90% of the domestic inflation rate’s behavior is explained as a function of the nominal devaluation rate, the external inflation rate, the output gap and the lagged domestic inflation rate. Also, the forecasting obtained with the this model one quarter ahead, had the best adjustment with respect other models (AR and no change)
- Demanda privada real de créditoKikut-Valverde, Ana Cecilia; Odio-Chinchilla, Jaime; Sáenz-Castegnaro, Manrique; Solera-Ramírez, ÁlvaroA demand for credit by the private sector is estimated for Costa Rica based on monthly data over the period 1995 – 2001. This demand is modeled as a function of the real interest rate on lending, real economic activity, and expected future growth in production. We calculate a lending interest rate as the (weighted) average of interest rates across economic activities and across dollar and local currency denominated loans. Given the large proportion of dollar denominated loans in the current banking system portfolio, this is a significant improvement over previous studies typically based on the lending rate for only local currency-denominated loans. Since the interest rate may be an endogenous variable in this model (i.e. correlated with the error term in the demand for credit equation), the US Prime Rate is used as an instrumental variable in a two -stage least squares regression. The results of the regression analysis using two -stage least squares indicates that the semi-elasticity of real private credit with respect to the real interest rate is –4.08. Given an average (lending) real interest rate of 12.9% this implies an interest-elasticity close to –0.53. As expected, this estimate is higher (in absolute value) than the one obtained using OLS. The estimated elasticity of credit demand with respect to economic activity is 1.87. Finally, a one percentage-point increase in expected production growth (proxied by futures effective growth) is estimated to produce a 0.3 percent in demand for real credit.
- Determinantes de la cuenta corriente en Costa RicaThis paper develops variants of the model suggested by Glick and Rogoff (1996) and VAR models to analyze short term effects of the main determinants for the current account in Costa Rica. Empirical evidence suggests that, lagged investment, government’s primary surplus, terms of trade, international interest rates, and the real exchange rate, have significant impact on the evolution of the current account. Changes in the terms of trade have a moderate effect on the current account. Terms of trade affect the current account by two channels, the quantum and the value of the exports and imports. The estimated net effect suggests that a decline on the terms of trade produces a worsening in the current account deficit. Government income and expenses have influence on the current account in such a way that increases in the government’s surplus net of interest payments will reduce the current account deficit. In addition, international interest rates and real exchange rate variations have a significantly positive effect on the current account. Finally, no significant effect of US growth on current account deficit can be identified.
- Estimación de una función de reacción para la tasa de interés de política del Banco Central de Costa RicaIn this paper, we estimate a reaction function for the interest rate set by the Central Bank of Costa Rica in response to variables that are generally relevant to the monetary authorities. These variables include inflation, real GDP growth, international monetary reserves, devaluation, and net increase in domestic public debt. Our specification models the nominal interest rate level as a function of international interest rates, devaluation rate, inflation rate deviations from target, monetary reserves and real GDP deviations from long run trends, and domestic public debt growth. The results indicate that the Central Bank’s interest rate policy is consistent with its crawling peg regime defense and domestic prices stability goals. Particularly, the bank tends to increase the interest rate when the devaluation rate increases or when the level of international reserves decreases with respect to its trend. Also, the interest rate increases as a response to inflation rates that exceed the Bank’s target or when GDP grows faster than potential GDP. Finally, the interest rate also responds to net increases in domestic public debt, reflecting the effect of the Public Sector on the demand for funds.
- Modelo Macroeconómico de Pequeña Escala para Costa RicaA small scale macroeconomic model (SSMM) was devised and estimated as part of the modernizing process of the Monetary Program of the Central Bank of Costa Rica. The SSMM is intended to enhance the knowledge of the transmission channels of the monetary policy actions designed to achieve external an internal stability of the domestic currency. The SSMM is intended also for short and medium run forecasting under different scenarios. This document describes a theoretical model with four behavioral equations to estimate: the inflation (Phillips Curve augmented with expectations), the real gross domestic product growth rate (Aggregate Demand function), the change in net foreign reserves, and nominal interest rate (Central Bank’s reaction function). Cointegration analysis and error corrections models are applied to obtain the parameters of some of the equations. The frequency of the data is quarterly from 1991:01 to 2004:01. This document also include a forecast evaluation, simulations of shocks to policy variables (interest rate, exchange rate), and some exogenous variables such as international interest rate, United States growth rate and terms of trade.
- Posición Financiera Neta del Sector Público Global : Aspectos metodológicos y ejercicios de simulaciónWe examine the evolution of the Public Sector net financial worth during 1999-2002, and forecast its path over the rest of the present decade under different economic scenarios. By looking at the net financial worth components, we are able to explain changes in public debt due to balance sheet recomposition and those related to fiscal deficit financing. In addition, we are able to assign different rates of return to different assets and liabilities.This analysis and the projections thereby obtained will be useful in future fiscal policy sustainability studies. Moreover, by producing public debt and fiscal deficit forecasts that are consistent with each other, these projections will prove a valuable input in the elaboration and revision of the Central Bank MonetaryProgram.Assuming that Public Sector primary surplus stays constant as a proportion of GDP at 2003 forecasted levels, that international interest rates increase only gradually over the next seven years, and that GDP growth converges to a 3.5% annual growth rate, our baseline simulations forecast a stable path for thepublic to GDP ratio (at 49%). However, our simulations also indicate that the Public Sector solvency condition is highly vulnerable to increases in real interest rates and lower GDP growth, given the currently high debt to GDP ratio.