Abstract

This paper develops the hypothesis that the Brazilian interest rate is high as a result of partially obstructed monetary transmission mechanisms. Transmission failures arise due to the following characteristics of the Brazilian economy: (i) segmentation of the credit market; (ii) low penetration of free credit within the income determination process; (iii) truncated term structure of interest rates; (iv) participation of LFT’s in public debt; (v) participation of administered prices in the consumer price index. To achieve this result, the paper explores the BMW model and provides some preliminary evidence.

JEL Classification: E40; E43; E52.