Cyclical Consumption, Real Interest Rate Deviations and Output Gaps in a Large Emerging Economy: Expected and Unexpected Responses under Different Regimes

Moreira, Ricardo Ramalhete (2024) Cyclical Consumption, Real Interest Rate Deviations and Output Gaps in a Large Emerging Economy: Expected and Unexpected Responses under Different Regimes. Modern Economy, 15 (05). pp. 493-514. ISSN 2152-7245

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Abstract

This article proposed and tested the hypothesis that both expected and unanticipated responses of cyclical consumption to changes in real interest rate (and income) are marked by non-linearities and asymmetries, depending on the regime concerning the underlying real consumption time trend. The reference model is in line with the micro-founded optimizing behavior of consumers, and different inference methods were employed to test our hypothesis for the case of a large emerging economy, like the Brazilian one, over the monthly period from February 2003 to July 21, thereby covering a post COVID-19 sample. Under different model specifications and alternative methods for extracting latent cycles, the evidence indicated that in a regime of stagnation/decline in real consumption, the latter becomes more sensitive to both real interest rate deviations and output gaps, compared to what is observed under a growth regime.

Item Type: Article
Subjects: GO for STM > Social Sciences and Humanities
Depositing User: Unnamed user with email support@goforstm.com
Date Deposited: 11 May 2024 08:04
Last Modified: 11 May 2024 08:04
URI: http://archive.article4submit.com/id/eprint/2831

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