Public Debt Investors and Brazilian Macroeconomic Indicators


Roberto Aragão

Headlines such as ‘Investors flee country X as public debt increases’ are frequently in the news.Scholars often take for granted that market participants use macroeconomic indicators for portfolio allocation and to influence government policies. However, it has remained unclear just how public debt investors use and interpret macroeconomic indicators, or how well they understand which information they do, or do not, reflect. This subproject has dug deeper into the Brazilian case to understand how macroeconomic indicators are constructed there, and how vulnerable financial markets have been to decisions about macroeconomic indicator operationalization.

The financial analysis black box

"Market participants" is an abstract category, and actors in this category are frequently blamed for imposing constraints on governments. Analytically, however, it has been essential to disaggregate this group into two sub-groups with distinct dynamics. The first consists of classic investors, responsible for decisions to buy or sell. The second, however, are de facto "market influencers", including economic and political consultancies, rating agencies, banks, and International Organizations.

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

This subproject has worked to disentangle how thoroughly members of each group understand and use macroeconomic indicators, and how they interact with governments that sell public debt.

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. In academic circles, little had been known about how and why the Brazilian economy is measured in specific ways. Understanding better how economies outside the OECD are measured, and why in these particular ways, has an integral aim of the FickleFormulas project.

A triple goal

This subproject has had three aims. To begin with, it has sought to unveil the modus operandi of public debt financial markets. Covering the flow of new information among market participants has revealed how important macroeconomic indicators are for investor decisions. Beyond that, it has chronicled how measurement formulas for economic growth, inflation, public deficit, and public debt have evolved in Brazil during the post-redemocratization period. To what degree has this evolution matched what we have found for other countries, for example in South Africa, also covered in FickleFormulas? How closely has indicator development beyond the OECD tracked international standards and best practices? Building on these findings, in its final analytical step this subproject has evaluated the impact of macroeconomic indicators on the relationship between markets and governments and estimated the impact of methodological changes on investment decisions.