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The Natural Rate of Interested in Brazil Between 1999 and 2005

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  • Portugal, Marcelo Savino
  • Barcellos, Paulo

Abstract

The aim of the present study is to estimate the level of the natural rate of interest in Brazil after the implementation of the inflation targeting regime. Miranda and Muinhos (2003), Arida, Bacha and Lara-Resende (2005), Gonçalves, Holland and Spacov (2005) and Muinhos and Nakane (2006) investigated the major reasons for the persistently high levels of real interest rates in Brazil. The present study introduces three different estimates for the behavior of long-term interest rates in Brazil. First of all, the definition of the natural rate of interest is analyzed in a time perspective, highlighting the importance of this issue to the conduct of present-day Brazilian monetary policy. In a second moment, statistical filters are used for the ex ante and ex post real interest series, followed by the estimation of a dynamic Taylor rule, which allows obtaining the real interest rate implicit in the monetary policy decisions made by the Brazilian Central Bank after the implementation of the inflation targeting regime. These estimates are eventually compared with the natural rate of interest obtained from a simplified macroeconomic state-space model, as proposed by Laubach and Williams (2003). The results indicate that monetary policy decisions caused the level of the real interest rate to fluctuate around that of the natural rate of interest, showing that the Brazilian monetary authority assumed a policy-neutral stance in most of the analyzed period.

Suggested Citation

  • Portugal, Marcelo Savino & Barcellos, Paulo, 2009. "The Natural Rate of Interested in Brazil Between 1999 and 2005," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 63(2), June.
    • Handle: RePEc:fgv:epgrbe:v:63:y:2009:i:2:a:1035
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    References listed on IDEAS

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    1. Gonçalves, Fernando M & Holland, Marcio & Spacov, Andrei, 2007. "Can Jurisdictional Uncertainty and Capital Controls Explain the High Level of Real Interest Rates in Brazil? Evidence from Panel Data," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 61(1), August.
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    Cited by:

    1. Andreza A Palma, 2016. "Natural interest rate in Brazil: further evidence frThe main objective of this study is to estimate the natural interest rate for Brazil using a parsimonious AR-trend-bound model proposed by Chan, Koo," Economics Bulletin, AccessEcon, vol. 36(3), pages 1306-1314.
    2. Adonias Evaristo da Costa Filho, 2017. "What Drives Long Term Real Interest Rates in Brazil?," Brazilian Business Review, Fucape Business School, vol. 14(6), pages 624-635, November.
    3. Alberto Ronchi Neto & Osvaldo Candido, 2020. "Measuring the neutral real interest rate in Brazil: a semi-structural open economy framework," Empirical Economics, Springer, vol. 58(2), pages 651-667, February.
    4. Ilyas Siklar & Umit Yildiz & Sinan Cakan, 2016. "The Time - Varying Natural Rate of Interest and Its Fundamental Determinants: Time Series Evidence from Turkey," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 390-400, December.
    5. Ruch,Franz Ulrich, 2021. "Neutral Real Interest Rates in Inflation Targeting Emerging and Developing Economies," Policy Research Working Paper Series 9711, The World Bank.

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