Abstract

IWe provide here a model that attempts to explain how the financial circuit in
Brazil became an outstanding locus of wealth valuation. It shows that its special character
is due to a peculiar institutional arrangement that allows the public sector – the main financial
agent – to operate with negative spread. Then, inflationary shocks can produce very
strong movements of private sector portfolio, between indexed and non-indexed bonds,
which can deepen the negative spread. This is the reason why the financial circuit is a source
of wealth valuation, since this negative spread is appropriated by the financial speculators.

JEL Classification: H63.