Public Debt Investors and Brazilian Macroeconomic Indicators


Roberto Aragão

Headlines such as ‘Investors leave the country as public debt increase’ are frequently on the news. The power of this omnipresent player is often given and assumed as highly influential. On the academy, a growing number of scholars recognize that market participants use macroeconomic indicators to determine portfolio allocation and to influence governmental decisions. However, there is no concrete answer to how public debt investors use and interpret macroeconomic indicators, or whether they accurately understand which information is considered in the numbers and which is not. We are digging deeper on the Brazilian case to understand how macroeconomic indicators are constructed in that country and whether financial markets are vulnerable to macroeconomic indicators operationalization decisions.

Opening the Financial World Box

Market participants is a relatively abstract category frequently blamed for constrains imposed to governments. To understand the role of macroeconomic indicators, however, it is necessary to disaggregate this abstract group in at least two sub-groups with distinct dynamics. The first consists in the traditional category of investors, which are those responsible for buying and selling decisions. The second are market influencers, which includes economic and political consultancies, rating agencies, banks and International Organizations. How deeply each group do understand and use macroeconomic indicators, and how do they interact with governments are some of the questions that this project will try to answer.

'Investors may not have a full grasp of what is measured on macroeconomic indicators'

Studying Brazilian Indicators

If systematic knowledge about the politics of macroeconomic measurement is thin concerning OECD member countries, it is almost non-existent for countries outside this grouping. But as has been widely acknowledged, many former “developing countries” are rapidly becoming economic powerhouses that easily eclipse more “advanced” countries. For now, little is known about how and why Brazilian economy is measured in specific ways. To better understand how economies are measured outside the OECD, and why in these particular ways, is an integral aim of the FickleFormulas projects.

A triple goal

This sub-project has three aims. To begin with, it will unveil the modus operandi of public debt financial markets. Covering the flow of new information among market participants we will show how important macroeconomic indicators are on the decision process of investors. The next goal consists in chronicle how measurement formulas for economic growth, inflation, public deficit and public debt have evolved in Brazil during the post-redemocratization period. To what degree does this evolution match what we have found for other countries? How closely does it track the development of international standards and best practices? What kind of pressures they suffered throughout their construction? Building on these findings we can in a third step then conclude about the role of macroeconomic indicators on the relationship of markets and governments and estimate the impact of methodological changes on investment decisions.