The Natural Rate of Interest in Brazil: an Open Economy DSGE Approach
Resumo: We estimate the natural rate of interest prevailing in the Brazilian economy during the 2002-2024 period and analyze the transmission of US economy shocks to the Brazilian economy using a medium-scale two-country New Keynesian DSGE model. The model incorporates Brazil as a small open economy (SOE) and the US as the rest of the world (RoW). SOE households’ choose between domestic and foreign bonds, representing the sole financial linkage between the economies. In line with the existing literature on the Brazilian natural rate of interest, we find a downwardsloping trend during the period, especially between 2003 and 2015. In the post-pandemic period there is an upward trend in the real natural rate of interest, reaching an estimated level of 5,7% in Q1 2025.
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