Financialization, coalition of interests and interest rate in Brazil

Luiz Carlos Bresser-Pereira, Luiz Fernando de Paula e Miguel Bruno

Submitted to Review de la Régulation.

In this paper, we go back to the hypothesis of a proconservative monetary policy convention in Brazil, as initially formulated by Bresser-Pereira and Nakano (2002) and Erber (2011), and add three particular sub-hypotheses to it: (i) the prevalence of high real interest rates in Brazil for decades has led to the formation of a coalition of rentierfinancier interests for keeping interest rates high and the resulting "financialization from interest income"; (ii) the existence of a "two-way" public-debt contagion effect between the banking reserves market and the public securities market; (iii) the use of a high interest rate to finance current-account deficits. To this end, the paper takes as its starting point Keynes's view of the interest rate as an eminently conventional phenomenon.

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