Peer-reviewed Journal Articles

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    Can Latin America Prosper by Reducing the Size of Government?
    ( 2009) Lizardo, Radhames ; Mollick, Andre Varella
    This article examines the effect of government consumption on economic growth in 23 Latin American countries over the years 1974–2003. Employing the Armey Curve, we show that the typical Latin American government is spending beyond the optimal point. Using panel data and a fixed effects (FE) model, we find that increases in government consumption lead to unambiguous decreases in economic growth.
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    The Sustainability of the U.S. Current Account Deficit: Revisiting Mann’s Rule
    ( 2009) Lizardo, Radhames ; Mollick, Andre Varella
    Using quarterly data from 1973 to 2008, we provide evidence that current account (CA) deficits exceeding 4.2% of GDP (“Mann's rule") do have a significant lowering effect on the U.S. dollar value against major currencies. Controlling for inflation, public debt, and a broad trade weighted index, excessive CA deficits have a negative long-run impact on the USD. Along the transition path, much faster speeds of adjustment to long-run equilibrium are found when current account deficits in excess of Mann's rule are considered: 20% of the deviations from the long-run equilibrium are corrected in a month against 8% or 9% without Mann's rule. This suggests that excessive values of the CA deficit are “priced in" in international foreign exchange markets. Contrary to earlier evidence in favor of CA sustainability, we conjecture that economic conditions have made investors more sensitive to bad news for the U.S. dollar.
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    Exchange Rate Volatility in Latin American and the Caribbean Region: Evidence from 1985 to 2005
    ( 2009) Lizardo, Radhames
    Using a total of 28 Latin American and Caribbean countries, this study finds a negative relationship between trade and exchange rate volatility. The econometric tool for this specific analysis is the widely used gravity model, in a panel data context. A similar condition is detected between inbound foreign direct investment and exchange rate volatility. The results of the study support the hypothesis that significant exchange rate volatility has a negative impact on the economies of the region and that achieving exchange rate stability should be a goal of policy makers in the context of Latin America and the Caribbean.
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    Do Foreign Purchases of U.S. Stocks Help the U.S. Stocks Market?
    ( 2009) Lizardo, Radhames ; Mollick, Andre Varella
    This paper investigates the relationship between the U.S. S&P 500 stock market and purchases of U.S. corporation stocks by foreign investors. Estimations using monthly data from 1978:1 to 2008:7 under various methodologies show that, controlling for asset prices (interest rates and the yield curve) and inflation, purchases of U.S. stocks by foreign investors have a positive and statistically significant impact on the U.S. stock market performance. We also show that their relationship is time variant. In a global world, the demand-side variable captured by the foreign appetite for U.S. stocks attenuates the negative effects associated with the domestic forces.
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    Oil Price Fluctuations and U.S. Dollar Exchange Rates
    ( 2010) Lizardo, Radhames ; Mollick, Andre Varella
    Adding oil prices to the monetary model of exchange rates, we find that oil prices significantly explain movements in the value of the U.S. dollar (USD) against major currencies from the 1970s to 2008. Our long-run and forecasting results are remarkably consistent with an oil-exchange rate relationship. Increases in real oil prices lead to a significant depreciation of the USD against net oil exporter currencies, such as Canada, Mexico, and Russia. On the other hand, the currencies of oil importers, such as Japan, depreciate relative to the USD when the real oil price goes up.