Can Jurisdictional Uncertainty and Capital Controls Explain the High Level of Real Interest Rates in Brazil? Evidence from Panel Data
AbstractThe phenomenon of high and persistent short-term real interest rates in Brazil has stimulated an extensive literature attempting to explain its causes. Among the various contributions on the topic, one that has received considerable attention is the article by Arida, Bacha, and Lara-Resende (2004) (henceforth, ABL), which argues that risks associated with the jurisdiction and currency inconvertibility are relevant determinants of the level of short-term real interest rates. In the present paper, we formulate a methodology based on ABL's definition of jurisdiction uncertainty, use a set of institutional variables that proxy the degree of jurisdictional uncertainty, build an index of currency inconvertibility based on capital controls and use them to test ABL's conjecture and variants of it. The results are by and large unfavorable not only to ABL's conjecture, but also to variants of their argument. The results further indicate that traditional monetary and fiscal factors are far more relevant to explain the level of short-term real interest rates than the binomial jurisdictional uncertainty/ currency inconvertibility is.
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Bibliographic InfoArticle provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its journal Revista Brasileira de Economia.
Volume (Year): 61 (2007)
Issue (Month): 1 (August)
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Other versions of this item:
- Fernando M. Gonçalves & Márcio Holland & Andrei D. Spacov, 2005. "Can Jurisdictional Uncertainty And Capital Controls Explain The High Level Of Real Interest Rates In Brazil? Evidence From Panel Data," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 028, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- O enigma das altas taxas de juros no Brasil
by Alex Segura-Ubiergo in Brasil Economia e Governo on 2012-08-06 14:44:09
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- Alex Segura-Ubiergo, 2012. "The Puzzle of Brazil's High Interest Rates," IMF Working Papers 12/62, International Monetary Fund.
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