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Investment decision and the interest rate in normal and exceptional times

Luiz Carlos Bresser-Pereira

Trabalho apresentado ao XVI Congresso Internacional da Latin American Studies Association (LASA), Washington, abril 1991. São Paulo: Fundação Getúlio Vargas, Departamento de Economia, Texto para Discussão no.5, abril 1991.

Abstract. Macroeconomics is a historical discipline. Comparing investment decisions and the interest rate in Brazil in 1970 and 1990, I show that in 'normal times' (early 1970s) firms give more attention to the expected rate of profit than to the interest rate because a "cushion pad" tends to exist setting apart the interest rate and the expected profit rate. Yet, in 'abnormal times' (early 1990s), when the country confronts a deep economic crisis, the expected rate of profit falls sharply while the market rate of interest rises, and the rate of interest assumes a more important role to explain autonomous investment behavior.