A panel-data analysis of interest rates and dollarization in Brazil
Autor(a) principal: | |
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Data de Publicação: | 2009 |
Outros Autores: | , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Revista Brasileira de Economia (Online) |
Texto Completo: | http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402009000400003 |
Resumo: | We investigate the role of financial dollarization and systemic risks in the determination of real interest rates in Brazil. In a simple currency-choice portfolio model, we show that a strategy of reducing dollarization, if it fails to address fundamental macroeconomic risks, leads to higher domestic real interest rates. We confirm this prediction in an empirical panel-based model, involving systemic risk variables, but find that the effect is small after controlling for the risks of dilution and default. We apply our empirical estimates to the case of Brazil - a natural case study given its low degree of financial dollarization and very high real interest rates. The estimated model is unable to explain the high interest rate levels in the aftermath of Brazil's 1994 inflation stabilization. However, since the adoption in 1999 of inflation targeting and floating exchange rates, Brazil's real interest rates are found to be gradually converging to the model's predicted values. The estimation also shows that further reductions in Brazil's real interest rates could be achieved through sound fundamentals that led to investment-grade status rather than financial dollarization. |
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Revista Brasileira de Economia (Online) |
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A panel-data analysis of interest rates and dollarization in BrazilFinancial DollarizationInterest RatesBrazilEmerging MarketsPanel DataWe investigate the role of financial dollarization and systemic risks in the determination of real interest rates in Brazil. In a simple currency-choice portfolio model, we show that a strategy of reducing dollarization, if it fails to address fundamental macroeconomic risks, leads to higher domestic real interest rates. We confirm this prediction in an empirical panel-based model, involving systemic risk variables, but find that the effect is small after controlling for the risks of dilution and default. We apply our empirical estimates to the case of Brazil - a natural case study given its low degree of financial dollarization and very high real interest rates. The estimated model is unable to explain the high interest rate levels in the aftermath of Brazil's 1994 inflation stabilization. However, since the adoption in 1999 of inflation targeting and floating exchange rates, Brazil's real interest rates are found to be gradually converging to the model's predicted values. The estimation also shows that further reductions in Brazil's real interest rates could be achieved through sound fundamentals that led to investment-grade status rather than financial dollarization.Fundação Getúlio Vargas2009-12-01info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersiontext/htmlhttp://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402009000400003Revista Brasileira de Economia v.63 n.4 2009reponame:Revista Brasileira de Economia (Online)instname:Fundação Getulio Vargas (FGV)instacron:FGV10.1590/S0034-71402009000400003info:eu-repo/semantics/openAccessBacha,Edmar L.Holland,MárcioGonçalves,Fernando M.eng2009-12-04T00:00:00Zoai:scielo:S0034-71402009000400003Revistahttp://bibliotecadigital.fgv.br/ojs/index.php/rbe/issue/archivehttps://old.scielo.br/oai/scielo-oai.php||rbe@fgv.br1806-91340034-7140opendoar:2009-12-04T00:00Revista Brasileira de Economia (Online) - Fundação Getulio Vargas (FGV)false |
dc.title.none.fl_str_mv |
A panel-data analysis of interest rates and dollarization in Brazil |
title |
A panel-data analysis of interest rates and dollarization in Brazil |
spellingShingle |
A panel-data analysis of interest rates and dollarization in Brazil Bacha,Edmar L. Financial Dollarization Interest Rates Brazil Emerging Markets Panel Data |
title_short |
A panel-data analysis of interest rates and dollarization in Brazil |
title_full |
A panel-data analysis of interest rates and dollarization in Brazil |
title_fullStr |
A panel-data analysis of interest rates and dollarization in Brazil |
title_full_unstemmed |
A panel-data analysis of interest rates and dollarization in Brazil |
title_sort |
A panel-data analysis of interest rates and dollarization in Brazil |
author |
Bacha,Edmar L. |
author_facet |
Bacha,Edmar L. Holland,Márcio Gonçalves,Fernando M. |
author_role |
author |
author2 |
Holland,Márcio Gonçalves,Fernando M. |
author2_role |
author author |
dc.contributor.author.fl_str_mv |
Bacha,Edmar L. Holland,Márcio Gonçalves,Fernando M. |
dc.subject.por.fl_str_mv |
Financial Dollarization Interest Rates Brazil Emerging Markets Panel Data |
topic |
Financial Dollarization Interest Rates Brazil Emerging Markets Panel Data |
description |
We investigate the role of financial dollarization and systemic risks in the determination of real interest rates in Brazil. In a simple currency-choice portfolio model, we show that a strategy of reducing dollarization, if it fails to address fundamental macroeconomic risks, leads to higher domestic real interest rates. We confirm this prediction in an empirical panel-based model, involving systemic risk variables, but find that the effect is small after controlling for the risks of dilution and default. We apply our empirical estimates to the case of Brazil - a natural case study given its low degree of financial dollarization and very high real interest rates. The estimated model is unable to explain the high interest rate levels in the aftermath of Brazil's 1994 inflation stabilization. However, since the adoption in 1999 of inflation targeting and floating exchange rates, Brazil's real interest rates are found to be gradually converging to the model's predicted values. The estimation also shows that further reductions in Brazil's real interest rates could be achieved through sound fundamentals that led to investment-grade status rather than financial dollarization. |
publishDate |
2009 |
dc.date.none.fl_str_mv |
2009-12-01 |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402009000400003 |
url |
http://old.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402009000400003 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
10.1590/S0034-71402009000400003 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
text/html |
dc.publisher.none.fl_str_mv |
Fundação Getúlio Vargas |
publisher.none.fl_str_mv |
Fundação Getúlio Vargas |
dc.source.none.fl_str_mv |
Revista Brasileira de Economia v.63 n.4 2009 reponame:Revista Brasileira de Economia (Online) instname:Fundação Getulio Vargas (FGV) instacron:FGV |
instname_str |
Fundação Getulio Vargas (FGV) |
instacron_str |
FGV |
institution |
FGV |
reponame_str |
Revista Brasileira de Economia (Online) |
collection |
Revista Brasileira de Economia (Online) |
repository.name.fl_str_mv |
Revista Brasileira de Economia (Online) - Fundação Getulio Vargas (FGV) |
repository.mail.fl_str_mv |
||rbe@fgv.br |
_version_ |
1754115905173848064 |