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Saving and Real Interest Rates in Brazil

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  • Gleizer, Daniel Luiz

Abstract

This paper presents a critical analysis of governments' attempts to increase national and private savings by raising the real rate of return on financial assets. Using the Brazilian economy as a case study, the paper argues that successes in increasing the savings rate can be traced to the fiscal reforms that accompanied the process of financial system redesign that sought to free interest rates from administrative controls. Two types of econometric exercises are performed to offer evidence of the responsiveness of savings to changes in the expected real interest rate. The first one uses a standard saving function approach in evaluating the magnitude of the interest elasticity of savings. The second test addresses the issue by using the Euler equation technique and measuring the rate of intertemporal substitution in consumption. The results obtained in both sections point to a negligible effect of real interest rates on aggregate and private sector saving. These results have important implications for the design of stabilization and structural reform programs and they contradict the fundamental behavioral hypothesis underlying the savings policy advice most often given to developing economies by international organizations like the World Bank and the IMF.

Suggested Citation

  • Gleizer, Daniel Luiz, 1991. "Saving and Real Interest Rates in Brazil," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 11(1), April.
    • Handle: RePEc:sbe:breart:v:11:y:1991:i:1:a:3009
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    Cited by:

    1. Cavalcanti, Carlos B., 1993. "Intertemporal Substitution in Consumption: An American Investigation for Brazil," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 13(2), November.
    2. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.
    3. Sachsida, Adolfo & Junior, Roberto de Góes Ellery & Gomes, Victor, 2002. "Business Cycle Fluctuations in Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 56(2), April.
    4. Combey, Adama, 2016. "Private Consumption in The WAEMU Zone: Does Interest Rates Matter?," MPRA Paper 75144, University Library of Munich, Germany.

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