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Why Are Policy Real Interest Rates So High in Brazil? An Analysis of the Determinants of the Central Bank of Brazil’s Real Interest Rate

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  • Thereza Balliester Reis

Abstract

This article discusses the determinants of Brazil’s high policy real interest rates by considering two opposing views, the orthodox and heterodox approaches. While orthodox authors defend the position that bad domestic policies are the cause of the high interest rate, heterodox economists claim that the international financial system and orthodox policies influence the level of the policy rate in Brazil. The aim of this study is to assess whether the proposed arguments can be supported when comparing Brazilian real interest rates with other developing countries under the same monetary regime. A panel regression with 11 developing countries over the period 1996–2015 is estimated to test these hypotheses. The conclusion is that, although the orthodox and heterodox arguments are both coherent, when comparing stylized facts and testing the hypotheses econometrically neither is sufficient to elucidate the Brazilian case. The article concludes by suggesting that there might be political causes of the high real interest rates in Brazil such as a politically influential rentier class.

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  • Thereza Balliester Reis, 2018. "Why Are Policy Real Interest Rates So High in Brazil? An Analysis of the Determinants of the Central Bank of Brazil’s Real Interest Rate," International Journal of Political Economy, Taylor & Francis Journals, vol. 47(2), pages 178-198, April.
  • Handle: RePEc:mes:ijpoec:v:47:y:2018:i:2:p:178-198
    DOI: 10.1080/08911916.2018.1497580
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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