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The expectation hypothesis of interest rates and network theory: The case of Brazil

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  • Tabak, Benjamin M.
  • Serra, Thiago R.
  • Cajueiro, Daniel O.

Abstract

This paper investigates the topological properties of the Brazilian term structure of interest rates network. We build the minimum spanning tree (MST), which is based on the concept of ultrametricity, using the correlation matrix for interest rates of different maturities. We show that the short-term interest rate is the most important within the interest rates network, which is in line with the Expectation Hypothesis of interest rates. Furthermore, we find that the Brazilian interest rates network forms clusters by maturity.

Suggested Citation

  • Tabak, Benjamin M. & Serra, Thiago R. & Cajueiro, Daniel O., 2009. "The expectation hypothesis of interest rates and network theory: The case of Brazil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(7), pages 1137-1149.
    • Handle: RePEc:eee:phsmap:v:388:y:2009:i:7:p:1137-1149
    DOI: 10.1016/j.physa.2008.12.036
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