CAN JURISDICTIONAL UNCERTAINTY AND CAPITAL CONTROLS EXPLAIN THE HIGH LEVEL OF REAL INTEREST RATES IN BRAZIL? EVIDENCE FROM PANEL DATA

Fernando Goncalves (), Márcio Holland () and Andrei D. Spacov

Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33rd Brazilian Economics Meeting] from ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics]

Abstract: The phenomenon of high and persistent short-term real interest rates in Brazil has stimulated an extensive literature attempting to explain its causes. Among the various contributions on the topic, one that has received considerable attention is the article by Arida, Bacha, and Lara-Resende (2004) (henceforth, ABL), which argues that risks associated with the jurisdiction and currency inconvertibility are relevant determinants of the level of short-term real interest rates. In the present paper, we formulate a methodology based on ABL's definition of jurisdiction uncertainty, use a set of institutional variables that proxy the degree of jurisdictional uncertainty, build an index of currency inconvertibility based on capital controls and use them to test ABL's conjecture and variants of it. The results are by and large unfavorable not only to ABL's conjecture, but also to variants of their argument. The results further indicate that traditional monetary and fiscal factors are far more relevant to explain the level of short-term real interest rates than the binomial jurisdictional uncertainty/ currency inconvertibility is.

JEL-codes: E43 E50 K40 K41 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Can Jurisdictional Uncertainty and Capital Controls Explain the High Level of Real Interest Rates in Brazil? Evidence from Panel Data (2007)
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