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The Role of Interest Rates in the Brazilian Business Cycle

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  • Nelson F. Souza Sobrinho

Abstract

This paper offers additional insights on the relationship between interest rates and business cycles in Brazil. First, I document that Brazilian interest rates are very volatile, counter-cyclical and positively correlated with net exports, as observed in other emerging economies. Next, I present a dynamic general equilibrium model in which firms face working capital constraints and labor supply is independent of consumption. This parsimonious model, appropriately calibrated to the Brazilian economy, predicts that interest rate shocks can explain about one third of output fluctuations and generates business cycle regularities consistent with the Brazilian data.

Suggested Citation

  • Nelson F. Souza Sobrinho, 2010. "The Role of Interest Rates in the Brazilian Business Cycle," Working Papers Series 218, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:218
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    Cited by:

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    2. Thales A. J. T. T. Maion & Marcio Issao Nakane, 2019. "News shocks and consumer expectations: evidence for Brazil," Working Papers, Department of Economics 2019_11, University of São Paulo (FEA-USP).

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