Estimating the Neutral Real Interest Rate of the Brazilian Economy in the Post-Inflation Period

Abstract

This paper aims to estimate the neutral real interest rate of the Brazilian economy, a variable that, despite not being explicitly observable, is extremely important in economic policy discussions. In order to do so, after a brief literature review and an exposition of the method used herein, the estimations were performed via two different methods: the Hodrick-Prescott filter and a structural VAR model. After these estimates were made, we combined both, resulting in a single estimate for the Brazilian neutral rate. The strategy of combining both methods was adopted because each one has a profile and captures different information, making them complementary, in addition to returning a smoother estimate and reducing the uncertainty inherent to estimating a latent variable such as neutral interest. The main results of this study revealed that it is not possible to affirm that the neutral interest significantly reduced in the period in which Alexandre Tombini was the head of the Central Bank, suggesting that its management was marked by the discretionary in the conduct of the monetary policy.