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Characterizing the Brazilian Term Structure of Interest Rates

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Author Info
Osmani T. Guillen
Benjamin M. Tabak

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Abstract

This paper studies the Brazilian term structure of interest rates and characterizes how the term premia has changed over time. We employ a Kalman filter approach, which is extended to take into account regime switches and overlapping forecasts errors. Empirical evidence suggests that term premia depends on international global liquidity and domestic factors such as the composition of public debt and inflation volatility. These results provide guidance for the formulation of fiscal and monetary policies.

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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 158.

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Date of creation: Aug 2008
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Handle: RePEc:bcb:wpaper:158

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

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  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
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  4. Benjamin Miranda Tabak & Sandro Canesso de Andrade, 2001. "Testing the Expectations Hypothesis in the Brazilian Term Structure of Interest Rates," Working Papers Series 30, Central Bank of Brazil, Research Department. [Downloadable!]
  5. Arielle Beyaert, Juan J. P rez-Castej, 2000. "Switching regime models in the Spanish inter-bank market," European Journal of Finance, Taylor and Francis Journals, vol. 6(2), pages 93-112, June. [Downloadable!] (restricted)
  6. Tzavalis, Elias & Wickens, Michael R, 1997. "Explaining the Failures of the Term Spread Models of the Rational Expectations Hypothesis of the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 364-80, August.
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  8. Lima, Alexandre Maia Correia & Issler, João Victor, 2003. "A hipótese das expectativas na estrutura a termo de juros no Brasil: Uma aplicação de modelos de valor presente," Economics Working Papers (Ensaios Economicos da EPGE) 480, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
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  9. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-82, April.
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  10. Arusha Cooray, 2003. "A test of the expectations hypothesis of the term structure of interest rates for Sri Lanka," Applied Economics, Taylor and Francis Journals, vol. 35(17), pages 1819-1827, November. [Downloadable!] (restricted)
  11. A. Arize & J. Malindretos & Z. Obi, 2002. "Long- and short-term interest rates in 19 countries: Tests of cointegration and parameter instability," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(2), pages 105-120, June. [Downloadable!] (restricted)
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  13. Cuthbertson, Keith, 1996. "The Expectations Hypothesis of the Term Structure: The UK Interbank Market," Economic Journal, Royal Economic Society, vol. 106(436), pages 578-92, May. [Downloadable!] (restricted)
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  15. Tom Engsted & Ken Nyholm, 2000. "Regime shifts in the Danish term structure of interest rates," Empirical Economics, Springer, vol. 25(1), pages 1-13. [Downloadable!] (restricted)
  16. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," NBER Working Papers 1669, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Bevilaqua, Afonso S & Garcia, Marcio G P, 2002. "Debt Management in Brazil: Evaluation of the Real Plan and Challenges Ahead," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(1), pages 15-35, January. [Downloadable!] (restricted)
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  18. Richard H. Clarida & Lucio Sarno & Mark P. Taylor & Giorgio Valente, 2006. "The Role of Asymmetries and Regime Shifts in the Term Structure of Interest Rates," Journal of Business, University of Chicago Press, vol. 79(3), pages 1193-1224, May. [Downloadable!]
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  19. Sharon Kozicki & P.A. Tinsley, 2002. "Term premia : endogenous constraints on monetary policy," Research Working Paper RWP 02-07, Federal Reserve Bank of Kansas City. [Downloadable!]
  20. Markku Lanne, 2003. "Testing the Expectations Hypothesis of the Term Structure of Interest Rates in the Presence of a Potential Regime Shift," Manchester School, University of Manchester, vol. 71(Supplemen), pages 54-67, 09. [Downloadable!] (restricted)
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  21. Eduardo J. A. Lima & Felipe Luduvice & Benjamin M. Tabak, 2006. "Forecasting Interest Rates: an application for Brazil," Working Papers Series 120, Central Bank of Brazil, Research Department. [Downloadable!]
  22. 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!]
  23. Toni Gravelle & James C. Morley, 2005. "A Kalman filter approach to characterizing the Canadian term structure of interest rates," Applied Financial Economics, Taylor and Francis Journals, vol. 15(10), pages 691-705, June. [Downloadable!] (restricted)
  24. 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!]
  25. Ghazali, Noor A & Low, Soo-Wah, 2002. "The Expectation Hypothesis in Emerging Financial Markets: The Case of Malaysia," Applied Economics, Taylor and Francis Journals, vol. 34(9), pages 1147-56, June. [Downloadable!] (restricted)
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  28. 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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