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Impact of exchange rate swaps on the dollar coupon curve: an analysis according to principal components regression

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Author Info

  • Alessandra Pasqualina Viola

    (PUC-RJ)

  • Margarida Sarmiento Gutierrez

    (COPPEAD-RJ)

  • Claudio Henrique Barbedo

    (IBMEC-RJ)

  • Andre Luiz Carvalhal da Silva

    (PUC-RJ)

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    Abstract

    The objective of this article is to verify, based on balanced portfolio theory, the impact of the offer by the Brazilian Central Bank of exchange rate swaps and reverse swaps on the attributes of the term structure of the effective interest rate on dollar borrowings (the dollar coupon curve). For this purpose, we use linear regression of principal components. As a complementary analysis, we also study the volatility of the dollar coupon curve and the spot exchange rate. The results indicate that the reverse foreign exchange swaps do not generate an impact on the general level of the coupon curve, while the regular swaps generate significant changes.

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    Bibliographic Info

    Article provided by Fucape Business School in its journal Brazilian Business Review.

    Volume (Year): 10 (2013)
    Issue (Month): 1 (January)
    Pages: 79-101

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    Handle: RePEc:bbz:fcpbbr:v:10:y:2013:i:1:p:79-101

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    Postal: Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES
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    Related research

    Keywords: Dollar coupon curve; principal components analysis; linear regression of principal components; exchange rate determination theory.;

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    1. Felipe Pinheiro & Caio Almeida & José Vicente, 2007. "Um Modelo de Fatores Latentes com Variáveis Macroeconômicas para a Curva de Cupom Cambial," Working Papers Series 148, Central Bank of Brazil, Research Department.
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