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The Brazilian economy: Consumer X Interest

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Young W.
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  1. Introduction
  2. The Brazilian economy
  3. Consumer X Interest
  4. Conclusion

In the previous part, we have seen that, in theory, the consumer reacts negatively to an increase in interest rates. We will seek to verify this part of the chapter the behavior of interest variables, consumption and inflation in the Brazilian economy after the adoption of inflation targeting regime. With that we will be able to contrast the Brazilian reality with economic theory. In all grades we use, we adopted the 1995 to early, and 2004 to the end of the review period.

In Table 1, data from the Selic rate behavior and consumption as a percentage of GDP are presented. We see that in the period, the interest rate showed a downward trend. In 1995, the rate was in about 43%. At the end of the period variation was about 15%. Consumption data also show a downward trend.

[...] Mendonca, HF, Inflation Targeting: a preliminary analysis for the Brazilian case. Applied Economics. V No p.129- Rigolon, GIAMBIAGI, F. Central Bank Interventions in a stabilized economy: it is desirable to adopt inflation targeting in Brazil BNDES Essays, Essay April 1998. SICSÚ, J., control inflation Non-Monetary Policy: A Post Keynesian proposal. Rio de Janeiro, RJ: [s.n.], [ca.200]. 25p. SICSÚ, J., Theory and Evidence of the inflation targeting regime, Political Economy Journal, V No p.23-33, January-March 2002. SILVA, Marcelo E. A PORTUGAL, Marcelo S. [...]


[...] On the other hand, the consumption of consumer goods remains practically hard to change in interest rates. As already noted, most of the population is poor, and spend their income on consumer products. The effect produced by the consumption of consumer goods is predominant. The conclusion drawn from the data is as follows: in Brazil the adoption of inflation targeting model affects little consumption. This is because in this country the consumption is more sensitive to changes in interest rates. [...]

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