1 / 10

Andrew K. Rose Berkeley-Haas, CEPR and NBER

Comments on Forbes, Fratzscher , Kostka and Straub “ Bubble Thy Neighbor : Portfolio Effects …” . Andrew K. Rose Berkeley-Haas, CEPR and NBER. Key Message. Brazil’s bond taxes lower: Brazilian bond holding

moanna
Download Presentation

Andrew K. Rose Berkeley-Haas, CEPR and NBER

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Comments on Forbes, Fratzscher, Kostka and Straub “Bubble Thy Neighbor: Portfolio Effects …” Andrew K. Rose Berkeley-Haas, CEPR and NBER

  2. Key Message • Brazil’s bond taxes lower: • Brazilian bond holding • Equity holdings in “control risk” countries (Colombia, Indonesia, Peru, Thailand ….) • Focus in this paper: cross-country • Also interesting: cross-asset • Brazilian bond taxes lowers Brazilian equity holdings more than Brazilian bonds! (Table 6)

  3. The Good • Good Question • Interesting, original, topical, important • New Data Set • Choice of Brazil • Good tax variation • Important country, possibility of spillovers • Very Careful, Thorough Work • Frustratingly so (for discussant) • Nice Quantitative Summary of Effects • Most Caveats included

  4. Not as Good • How scalable is the finding? • Interview evidence from equity investors makes it look like taxes should be irrelevant (makes one suspicious of a fishing expedition) • Ex: is three months optimal? • Ex: why use change in IOF for just bonds? • Little motivation for externalities from interviews • Is stronger coverage of equity (4x bonds) the reason for findings? • Data coverage, not true effect? • Some (mild) over-statement • But most results shown, warts and all; authors very aware of sensitivities

  5. Nit-Picking? • If Brazil weight falls, then something else must rise (possibly cash) • Odd that effects of IOF are: • 16.6%-19.7% for global equity funds • Only 3.1%-4.8% for global emerging market equity • Only 0.1-2.1% for Latin American regional equity • Only 5-5.1% for Global emerging market bonds • Would have expected opposite!

  6. Most Externality Estimates Small • Ex: discussion (p19) of Table 4 (key!) “This indicates that there are no significant externalities from changes in the IOF on average portfolio allocations to all other countries in the sample.”

  7. Bubble thy Neighbor? • Where’s the evidence of bubbles? • If pecuniary externality with complete markets, effects offset each other; Pareto efficiency • Reasonable in financial markets? • “Bubble” a loaded word

  8. A Worry: Low Effect of Benchmark • Looks like 1:1 effect in Figure 1 • Very far from 1 in empirics (β≈.7) • Why so low? Measurement Error? Something that requires IV? • First “Iron Law” of Econometrics: coefficients biased down • Why not impose coefficient of 1 on benchmark?

  9. Referee Questions/Points • Why start in 2006, not earlier? • Trade Diversion analogy a red herring • Trade diversion with discriminatory taxes, differential prices (RTAs are not multilateral) • Irrelevant here! • Box-Cox test for levels vs. logs • If errors iid in (1), should be MA(1) in (2) • More generally: test for dynamics? • Especially with transitory taxes? • Is (3) necessary? • Usually don’t care about covariances between regressors • Descriptive statistics in Table 3 would help

  10. My Take: Believable … on Brazil • Evidence of Externalities Weak • Most direct evidence is negative: why so little effect on bonds? • Little in Tables 4-6 • Relatively little evidence on equities too • Appeal to Signaling Story (Bartolini-Drazen) • But no direct evidence of signaling • Just a consistent interpretation

More Related