Equilibrium interest rates under inflation targetingevidence from Brazil

Resumo

The real equilibrium interest rate (r*) is a fundamental concept for monetary policy in inflation targeting economies, since it is the real interest rate consistent with constant inflation, absent any shocks. This study addresses empirical challenges faced by one of the main methods to estimate equilibrium rates, based on the work of Laubach and Williams (2003). A monetary policy rule that implies an autoregressive path for interest rate cycles is incorporated to their model. This can greatly reduce uncertainty associated to the estimation of r ∗ and make data more informative on its path. This approach is then used to document the path of the equilibrium rate in Brazil since the adoption of the inflation target. There is evidence of a steep fall in the last 20 years, with value in the end of 2019 close to 3%. We also find that the reaction function of monetary policy has changed during this period, without impairing much the Central Bank’s credibility.

Ficha do documento

Tipo

Dissertação

Ano

2020

Instituição

Fundação Getulio Vargas

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso aberto

Identificador

oai:repositorio.fgv.br:10438/29322

Temas

Economia

Palavras-chave

Equilibrium interest ratesNatural interest rateKalman FilterInterest rate rulesTrend growthPotential outputTaxa de juros de equilíbrioTaxa natural de jurosRegras de política monetáriaFiltro de KalmanTendência de crescimentoProduto potencialEconomiaTaxas de juros - BrasilPolítica monetária - BrasilKalman, Filtragem deEquilíbrio econômico