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Forecasting Interest Rates: an application for Brazil

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Author Info
Eduardo J. A. Lima
Felipe Luduvice
Benjamin M. Tabak

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Abstract

Understanding the links between long and short-term interest rates is crucial for monetary policy makers, since Central Banks decide and set short-term interest rates in order to affect indirectly long-term interest rates, which affects aggregate spending. This paper studies whether VAR/VEC models are useful in predicting long-term interest rates for Brazil. The empirical results suggest that these models are useful in building qualitative scenarios for the Term structure of interest rates, but do not provide good forecasts in terms of accuracy. Furthermore, models that assume that the future path of short-term interest rates (target interest rates) is known by forecasters do not perform better in terms of both directional and forecasting accuracy.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps120.pdf
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Publisher Info
Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 120.

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Date of creation: Oct 2006
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Handle: RePEc:bcb:wpaper:120

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Web page: http://www.bcb.gov.br/?english

For technical questions regarding this item, or to correct its listing, contact: (Benjamin Tabak).

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Victorio Y. T. Chu & Márcio I. Nakane, 2001. "Credit Channel without the LM Curve," Working Papers Series 20, Central Bank of Brazil, Research Department. [Downloadable!]
  2. Mirta Noemí Sataka Bugarin & Roberto de Goes Ellery Jr. & Victor Gomes Silva & Marcelo Kfoury Muinhos, 2005. "Steady State Analysis of an Open Economy General Equilibrium Model for Brazil," Working Papers Series 92, Central Bank of Brazil, Research Department. [Downloadable!]
  3. Theodore M. Barnhill & Marcos R. Souto & Benjamin M. Tabak, 2006. "An Analysis of Off-Site Supervision of Banks' Profitability, Risk and Capital Adequacy: a portfolio simulation approach applied to brazilian banks," Working Papers Series 117, Central Bank of Brazil, Research Department. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Solange Gouvea, 2007. "Price Rigidity in Brazil: Evidence from CPI Micro Data," Working Papers Series 143, Central Bank of Brazil, Research Department. [Downloadable!]
  2. Jaqueline Terra Moura Marins & Eduardo Saliby, 2007. "Credit Risk Monte Carlos Simulation Using Simplified Creditmetrics' Model: the joint use of importance sampling and descriptive sampling," Working Papers Series 132, Central Bank of Brazil, Research Department. [Downloadable!]
  3. Gilneu F. A. Vivan & Benjamin M. Tabak, 2007. "A New Proposal for Collection and Generation of Information on Financial Institutions' Risk: the case of derivatives," Working Papers Series 133, Central Bank of Brazil, Research Department. [Downloadable!]
  4. Flávia Mourão Graminho, 2006. "A Neoclassical Analysis of the Brazilian "Lost-Decades"," Working Papers Series 123, Central Bank of Brazil, Research Department. [Downloadable!]
  5. Eduardo José Araújo Lima & Benjamin Miranda Tabak, 2007. "Building Confidence Intervals with Block Bootstraps for the Variance Ratio Test of Predictability," Working Papers Series 151, Central Bank of Brazil, Research Department. [Downloadable!]
  6. Arnildo da Silva Correa & André Minella, 2006. "Nonlinear Mechanisms of the Exchange Rate Pass-Through: a Phillips curve model with threshold for Brazil," Working Papers Series 122, Central Bank of Brazil, Research Department. [Downloadable!]
  7. Marcio M. Janot & Márcio G. P. Garcia & Walter Novaes, 2008. "Balance Sheet Effects in Currency Crises: Evidence from Brazil," Working Papers Series 162, Central Bank of Brazil, Research Department. [Downloadable!]
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  8. Sergio Rubens Stancato de Souza & Benjamin M. Tabak & Daniel O. Cajueiro, 2007. "Long-Range Dependence in Exchange Rates: the case of the European Monetary System," Working Papers Series 131, Central Bank of Brazil, Research Department. [Downloadable!]
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  9. Marcelo Y. Takami & Benjamin M. Tabak, 2007. "Evaluation of Default Risk for The Brazilian Banking Sector," Working Papers Series 135, Central Bank of Brazil, Research Department. [Downloadable!]
  10. Osmani T. Guillen & Benjamin M. Tabak, 2008. "Characterizing the Brazilian Term Structure of Interest Rates," Working Papers Series 158, Central Bank of Brazil, Research Department. [Downloadable!]
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  11. Barbara Alemanni & José Renato Haas Ornelas, 2008. "Behavior and Effects of Equity Foreign Investors on Emerging Markets," Working Papers Series 159, Central Bank of Brazil, Research Department. [Downloadable!]
  12. Ricardo Schechtman, 2007. "Joint Validation of Credit Rating PDs under Default Correlation," Working Papers Series 149, Central Bank of Brazil, Research Department. [Downloadable!]
  13. Roberta Blass Staub & Geraldo da Silva e Souza, 2007. "A Probabilistic Approach for Assessing the Significance of Contextual Variables in Nonparametric Frontier Models: an Application for Brazilian Banks," Working Papers Series 150, Central Bank of Brazil, Research Department. [Downloadable!]
  14. Benjamin M. Tabak, 2006. "The Dynamic Relationship between Stock Prices and Exchange Rates: evidence for Brazil," Working Papers Series 124, Central Bank of Brazil, Research Department. [Downloadable!]
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  15. Claudio Henrique da Silveira Barbedo & Eduardo Facó Lemgruber, 2007. "The Effect of Bid-Ask Prices on Brazilian Options Implied Volatility: A Case Study of Telemar Call Options," Working Papers Series 144, Central Bank of Brazil, Research Department. [Downloadable!]
  16. Marcos M. Abe & Eui J. Chang & Benjamin M. Tabak, 2007. "Forecasting Exchange Rate Density using Parametric Models: The Case of Brazil," Working Papers Series 138, Central Bank of Brazil, Research Department. [Downloadable!]
  17. Jose Vicente & Benjamin M. Tabak, 2007. "Forecasting Bonds Yields in the Brazilian Fixed Income Market," Working Papers Series 141, Central Bank of Brazil, Research Department. [Downloadable!]
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