Brazil: monetary policy and the neutral interest rate

• Published in: Journal of economic studies (Bradford) Vol. 43; no. 6; pp. 966 - 979
• Main Authors: da Silva, Cleomar Gomes, de Araújo, Rafael Cavalcanti
• Format: Journal Article
• Language: English
• Published: Glasgow Emerald Group Publishing Limited 01.01.2016
• Subjects: Banco Central do Brasil; Brazil; Central banks; Economic activity; Economic analysis; Economic crisis; Economic models; Economic policy; Equilibrium; Foreign exchange rates; Growth rate; Growth rates; Inflation; Interest rates; International finance; Kalman filters; Macroeconomics; Monetary policy; Phillips curve; Population growth; Variables; Brazil; United States > US; Portugal; Monetary policy; C22; E52; E43; Natural rate of interest; State-space models
• ISSN: 0144-3585; 1758-7387
• DOI: 10.1108/JES-10-2014-0168

Purpose The purpose of this paper is to analyze the conduct of monetary policy in Brazil and estimate the country’s neutral real interest rate. Design/methodology/approach The authors make use of a state-space macroeconomic model representation. Findings The period of analysis goes from 2003 up to the end of 2013 and the results show that the country’s natural rate of interest was around 4.2 percent in December 2013. Originality/value One of the main differences of this work is the inclusion of variables such as the real exchange rate and world interest rate. This is important because these variables play an important role in the definition of the interest rate and, consequently, in the definition of the neutral interest rate.