Monetary Policy and Long-Term Real Interest Rates in Brazil

This paper studies the sensitivity of long-term real rates to monetary policy in Brazil. Based on the response of long-term real rates to monetary policy decisions, it is found that monetary factors have little power over long-term rates, with 100 basis points unexpected hike in the policy rate leading to an increase in long-term real rates of 12 basis points. The results are consistent with the classical view of interest rates, in which the real rate of the economy in the long run is determined by real fundamentals and largely unrelated to monetary factors.