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- A Disaggregated Model and Second Round Effects for CPI Inflation in Costa RicaThis paper estimates a medium-term forecasting model for the headline inflation of Costa Rica, utilizing disaggregate data from the components of the Consumer Price Index (CPI). The period used for the estimation is characterize by a process of reduction of inflation and stabilized around the Central Bank's inflation target. The result show that the use of disaggregate data is at least as good as the aggregate data in forecast accuracy. The disaggregate model allows to differentiate the inertia and the Second-Round effects present on the inflation.
- Adopción del esquema de meta de inflación en Costa RicaThe Organic Law of the Central Bank of Costa Rica (BCCR) article 2, stablishes as its main objectives as ... to maintain the internal and external stability of the national currency and ensure its conversion to other currencies ... (Law 7558, 1995). In this context, internal stability is understood as providing low and stable inflation. During the first decade after this Law was passed (1995-2004) inflation remained in double-digit values (12.4% as an annual average), which contrasts with an average of 4.0% for the inflation of Costa Rica´s main trading partners.
- Algunas consideraciones en torno a las monedas digitales y los criptoactivosThis essay summarizes some ideas around digital currency and cryptoassets in the context of recent events and the growing interest on the subject. These are personal thoughts, but towards the end of the document I summarize the response by the authorities and the approach that the Banco Central de Costa Rica has followed in this topic.
- An Endogenous Regime Switching Model for the Exchange Rate Pass-Through Effect in Costa RicaEntendiendo el efecto de traspaso (ET) es crucial para la conducción de políticas de una economía pequeña y abierta como la de Costa Rica. En este documento, proponemos un modelo de vectores autorregresivos con cambio de régimen endógeno (RS-VAR) para estudiar el efecto de transmisión del tipo de cambio en Costa Rica. Identificamos dos regímenes: ET alto y ET bajo. Este modelo permite que las probabilidades de transición sean influenciadas por variables endógenas como la inflación, los precios del petróleo y el tipo de cambio. Encontramos que: i) el ET es de 4.5% en el régimen bajo y de 60% en el régimen alto, ii) un bajo ET resulta de períodos de alta volatilidad del tipo de cambio y, iii) un choque de inflación aumenta la probabilidad de una baja transmisión. Dada la evidencia, recomendamos considerar el ET oscila entre períodos de alta y baja magnitud en lugar de tener un valor único.
- Análisis cuantitativo de tasas de interés para reemplazar la LiborInternational financial authorities announced that by the end of 2021 the Libor interest rate calculation will be discontinued. This rate is also used for several operations in dollars in the Costa Rican market, therefore financial authorities decided that intermediaries should make their own studies, following best practices, to decide which rate to select as a substitute as a reference in their contracts. However, given the imminent discontinuation of the Libor, an additional challenge arises for the Central Bank of Costa Rica given that articles 52 and 80 of its Law make an explicit reference to the Libor rate for specific operations with the financial system. This paper analyzes the statistical characteristics of a set of interest rates that could eventually substitute the Libor rate. The analysis pays special attention to study cointegration, correlation and differences between the Libor and its possible substitutes. We found that the one-month average for the SOFR rate is the indicator that shows the best statistical properties if compared with the one- and six-month Libor.
- Un análisis de la paridad del poder de compra en países de la OCDEAn examination of the country’s PPP-adjusted aggregate price level compared to other regions of the world does not create a red flag with respect to Costa Rica being particularly expensive. This is true even when comparing Costa Rica with the OECD. The picture is very different when disaggregating price levels and conducting a study by product category. The analysis by categories shows that some product groups are extremely expensive in Costa Rica, not only in comparison with Latin America, but up to 30% more expensive than in OECD countries that have an average GDP per capita 56% higher to the Costa Rican. An analysis of the most expensive categories in the country, and the products that compose them, indicates that high costs might be linked to market concentration, little competition and the regulatory framework that surrounds the industries in these groups. Despite the country being relatively cheap in multiple categories, high prices in key industries with high concentration of producers may have contributed to the general notion of Costa Rica as an expensive country. In particular, many of the goods in expensive categories are part of the basic food basket. This impacts the most vulnerable population the most, as it allocates a greater percentage of its income to spending on food. Thus, increasing the degree of competition could disproportionately benefit low-income people, and help reduce real income inequality in the country.
- Análisis de productividad en Costa Rica: un enfoque microeconómicoThis paper analyzes the evolution of productivity of the formal sector in Costa Rica using microdata for the period 2005-2021. Manufacturing, wholesale and retail trade, and agricultural sectors are examined with special emphasis. Our results suggest that total factor productivity (TFP) has exhibited an upward trend since 2015. According to our estimations, firms in manufacturing and those under the Free Trade Zone regime have boosted productivity growth in recent years. However, productivity growth does not seem to be explained by a single economic sector. Similar to our findings in manufacturing, trade and agriculture show a dynamic where firms that experienced increases in their productivity are also the ones increasing their market share, a signal of efficiency. Finally, the estimated productivity exhibits desirable characteristics: it is positively correlated with firms´ export status, the degree of technological sophistication, and the level of socio-economic development and competitiveness of Costa Rica's municipalities.
- Análisis de sensibilidad de la banca comercial ante cambios en el entorno macroeconómicoThis document analyses the sensibility of response toward two of the major risks (liquidity and credit) that banking institutions confront when there are changes in the macroeconomic environment. Also, the work develops a clustering of bank entities taking as classification criteria its capability of response.One of the main results is that the average elasticity of reaction level is relatively low. However, there are significant extreme values that can be considered as the most vulnerable banks in the presence of changes of some macroeconomic variables. This banks should have a more strict following, in function of the future results that can be obtained with the use of other techniques due to the possibility of contagion effects when a considerable shock comes and deteriorates the financial development. Also we found that monetary variables produce less effects over liquidity and credit risks than real variables as Economic Activity Monthly Index (IMAE) and prices.In general terms, the banks are clustered from moderate to low reactions. This result can be either, convenient or inconvenient, depending on the Central Bank's point of view. If the criteria is to determine how volatile the behavior of banks can be against changes in the macroeconomic environment, this result is favorable in order to obtain financial system stability. However, if the criteria has to do with the capacity of Central bank policy instruments to affect banks financial developing, the results are not quiet promising.
- 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.
- Análisis del encadenamiento productivo de las empresas multinacionales atraídas por CINDE a Costa RicaThis paper describes backward productive linkages and its determinants for the foreign firms attracted by CINDE and others of the especial regime in Costa Rica. The linkages are defined as local transactions divided by total employees of each firm. With the “Registro de Variables Económicas” of the Central Bank of Costa Rica it is possible to observe transactions at the micro-level, and thus characterize linkages between 2008 and 2017. With diverse specifications of non-balanced panel data we found evidence in favor of greater linkages of the foreign, attracted by CINDE, and other firms in the especial regime relative to local firms. This supports the literature that says firms in developing countries have lower relative performance. Moreover, transactions on non-tradable goods and services are mainly done through local firms on the common regime. In contrast, foreign firms in the especial regimen are the ones that supplies tradable goods and services to multinational firms. Particularly, services suppliers have increased in quantity and also have higher growths of their transaction amounts with all groups of multinationals attracted to the country. There is still a lot of margin to improve for the local firms to be the major suppliers in the key inputs needed by multinationals. Additionally, some costs of non-tradables could diminish competitiveness. The main example is the generation, transmission, and distribution of electric energy. We argue it is in the investments promotion where public policy could promote economic growth and higher linkages of Costa Rica and the global value chains.
- Análisis histórico del tipo de cambio real en Costa RicaThe Real Exchange Rate (RER) is a relative price that determines the allocation of resources in an economy, therefore it has an impact on economic activity and, in addition, reflects the conditions that affect competitiveness in international trade. Its analysis and interpretation must be carried out in a complementary way with internal and external macroeconomic variables. In this paper, the RER in Costa Rica is analyzed from a historical perspective for the period 1957-2020, together with the trajectory of its long-term macroeconomic fundamentals and the exchange rate regime in force at each moment. There is also included an estimation of the equilibrium real exchange rate (ERER) using the approach called Behavioral Equilibrium Exchange Rate (BEER). It is documented that the macroeconomic fundamentals of the ERER have varied substantially in ways that affected the RER in different directions, and that the latter has mostly remained on a path consistent with the equilibrium dictated by its macroeconomic fundamentals.