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Real Interest Rates and Brazilian Business Cycles

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  • Fabio Kanczuk

    (University of Sao Paolo)

Abstract

We construct a dynamic general equilibrium model to assess the quantitative relationship between real interest rates and output fluctuations in the Brazilian economy from 1980 to 2001. When firms are subject to working capital restrictions, the model is consistent with both the cyclical volatilities of national income components and the countercyclical character of real interest rates. Simulations indicate that output fluctuations are quite sensitive to the persistence of interest rate oscillations. Non-structural econometric estimations of the dynamic IS curve are, therefore, susceptible to the Lucas' critique, and may misguide the Central Bank's policymaking. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2003.09.001
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 7 (2004)
Issue (Month): 2 (April)
Pages: 436-455

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Handle: RePEc:red:issued:v:7:y:2004:i:2:p:436-455

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Related research

Keywords: Business cycles; working capital; emerging markets;

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References

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Citations

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Cited by:
  1. Bosch, Mariano & Esteban-Pretel, Julen, 2012. "Job creation and job destruction in the presence of informal markets," Journal of Development Economics, Elsevier, Elsevier, vol. 98(2), pages 270-286.
  2. Aysun, Uluc & Honig, Adam, 2011. "Bankruptcy costs, liability dollarization, and vulnerability to sudden stops," Journal of Development Economics, Elsevier, Elsevier, vol. 95(2), pages 201-211, July.
  3. Cravo, Túlio A., 2011. "Are small employers more cyclically sensitive? Evidence from Brazil," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(4), pages 754-769.
  4. Alfaro, Laura & Kanczuk, Fabio, 2010. "Nominal versus indexed debt: A quantitative horse race," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(8), pages 1706-1726, December.
  5. Fabio Kanczuk & Laura Alfaro, 2012. "Carry Trade and Exchange Rate Regimes," Working Papers, Department of Economics, University of São Paulo (FEA-USP) 2012_05, University of São Paulo (FEA-USP).
  6. Chakraborty, Suparna & Otsu, Keisuke, 2012. "Deconstructing Growth - A Business Cycle Accounting Approach with application to BRICs," MPRA Paper 41076, University Library of Munich, Germany.
  7. Oviedo, P. Marcelo, 2005. "World Interest Rate, Business Cycles, and Financial Intermediation in Small Open Economies," Staff General Research Papers, Iowa State University, Department of Economics 12360, Iowa State University, Department of Economics.
  8. Mariano Bosch & Julen Esteban-Pretel, 2009. "Cyclical Informality and Unemployment," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-613, CIRJE, Faculty of Economics, University of Tokyo.
  9. Aysun, Uluc, 2008. "Automatic stabilizer feature of fixed exchange rate regimes," Emerging Markets Review, Elsevier, Elsevier, vol. 9(4), pages 302-328, December.
  10. T√∫lio Cravo, 2011. "Are Small Firms more cyclically Sensitive than Large Ones? National, Regional and Sectoral Evidence from Brazil," ERSA conference papers ersa10p507, European Regional Science Association.

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