The purpose of this paper is to analyze the conduct of monetary policy in Brazil and estimate the country’s neutral real interest rate.
The authors make use of a state-space macroeconomic model representation.
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.
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.
Disclaimer: the views expressed in this paper are those of the authors and do not necessarily represent those of the Brazilian Ministry of Finance.
The authors thank CNPQ and FAPEMIG for financial support.
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