Volume 44, Number 173,
April-June 2013
Automatic Stabilization and Social Security:
Brazil, Mexico, Costa Rica and Chile
Eloy Fisher
MACROECONOMIC STABILIZATION AND SOCIAL SECURITY ( ...continuation )

Figure 1. Inflation in Latin America and the oecd
Source: Prepared by the author with data from Inflation in Latin America and in the oecd. Source: cepalstat, oecd Statistics. To estimate inflation in Latin America, annual average data was used from Argentina, Barbados, Bolivia (The Plurinational State of), Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay and Venezuela (the Bolivarian Republic of). For the oecd, data was used for the European members (eu15) as well as the Czech Republic, Hungary, Iceland, Norway, Poland, Slovakia, Switzerland and Turkey.

ESTIMATION METHODS AND ECONOMETRICS MODELING

To capture the traction of these programs throughout the economic cycle, various econometric estimates were made starting with a base model described below. The model seeks to relate a series of inflows and outflows of social security programs in the four selected countries with a measure of the economic cycle, for which we will use a cyclical measure of unemployment surrounding a trend, based on a Hodrick-Prescott (Hodrick and Prescott, 1997) filter for annual data. Likewise, the change in the level of annual prices will be included to control for inflation in the estimate.

In order to estimate the coefficients, the Aggregate Ordinary Least Squares (aols) model and the Anderson-Hsiao (1981) dynamic estimator were used. These two procedures eliminate the unit root and endogenous effects, as they use primary differences, and in the specific case of Anderson-Hsiao, a procedure of instrumental variables is applied to the format panel instead of subtracting the average of the vectors – as is proper for the estimators of the panel of fixed effects. For the purposes of this study, these estimation methods were used to address the problem of endogeneity implicit in the flows of benefits and contributions with respect to the economic cycle and in this way produce residuals not correlated with the explanatory and dependent variables. Although the Anderson-Hsiao estimation method is less efficient than that Arellano-Bond (1991) method, in the context of this empirical model, the procedure allows us to analyze how robust the model is.

On the first level, the Aggregate Ordinary Least Squares (aols) model was used to estimate a base model, with specifications similar to those used by Darby and Melitz (2008) and by Ghilarducci, Saad-Lessler and Fisher (2012). This estimation method groups the panel of observations by section and years in a single estimate, in case there are no obvious dependencies among variables. By turning the flows into dollars, the model seeks to minimize the endogeneity of inflation with respect to the flow of resources, because inflation is measured in nominal terms of local currency. The use of the aols is relevant in this first stage because the initial differences eliminate any underlying integration, and the only purpose is to visualize the variation of the dependent variables with respect to the independent variable.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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