Reform of the Brazilian RGPS Pensions System

Filipe de Oliveira Bello and Onofre Alves Simões

No 2021/0191, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We assess the investor base impact on government borrowing costs and examine how investors react to shocks in sovereign bond yields, across 24 countries and 3 maturities between 2004Q1-2019Q2. Our VAR approach has the advantage of modelling bidirectional causality between yields and investor base. We find that higher foreign holdings are associated with lower yields but link these effects exclusively to foreign banks and mainly to 10-years maturity. Yields in GIIPS and EA core countries react in opposite directions to foreign holdings shocks. Foreign investment is procyclical, namely at the long end and where fundamentals are weaker. Thus, an EA sovereign debt crisis re-run cannot be dismissed requiring readiness to use supporting mechanisms to prevent contagion and an escalation that may jeopardize the monetary union itself. Yields’ response to domestic investment shocks is heterogeneous and seems to bear no significant relation with home bias. No cyclical trading pattern can be clearly associated to each type of domestic investor.

Keywords: Brazil; Pensions Reform; Defined Benefit; Defined Contribution; Notional Defined Contribution. (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-age and nep-isf
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