Excess Real Interest Rates and the Inflation Targeting Regime in Brazil: Monetary Policy Ineffectiveness and Rentiers¡¯ Interests

Fernando Ferrari Filho ()

Applied Economics and Finance, 2018, vol. 5, issue 6, 84-100

Abstract: Brazil has had, since the middle 1990s, one of the highest real interest rates in the world, yet not one of the lowest inflation rates. By the end of that decade, an inflation targeting regime (ITR) was introduced. Real interest rates have remained extremely high for international standards, while macroeconomic performance has been dismal on the same grounds. This article argues that these results can be explained by, among others reasons, pressures from the rentiers to frame monetary policy in a way to sustain very high interest earnings in a context where inflation is not very sensitive to monetary policy instruments. Under the ITR, the interest rate seems to have been kept above what would be required to maintain low inflation under normal conditions (even if one assumes a demand-pull inflation, which is not necessarily the case), with a potentially negative impact on growth and employment. This is interpreted as an indicator of monetary policy ineffectiveness. On the empirical ground, this article compares interest rate, inflation, unemployment, and real output growth for Brazil with both ITR and non-ITR countries selected by judgment sampling.

Keywords: real interest rate; inflation targeting regime; policy effectiveness; Brazilian economy; rentiers (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://redfame.com/journal/index.php/aef/article/view/3710/3870 (application/pdf)
http://redfame.com/journal/index.php/aef/article/view/3710 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rfa:aefjnl:v:5:y:2018:i:6:p:84-100

Access Statistics for this article

More articles in Applied Economics and Finance from Redfame publishing Contact information at EDIRC.
Bibliographic data for series maintained by Redfame publishing ().