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Testing for long-range dependence in the Brazilian term structure of interest rates

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  • Cajueiro, Daniel O.
  • Tabak, Benjamin M.

Abstract

This paper presents empirical evidence of fractional dynamics in interest rates for different maturities for Brazil. A variation of a newly developed test for long-range dependence, the V/S statistic, with a post-blackening bootstrap is employed. Results suggest that Brazilian interest rates possess strong long-range dependence in volatility, even when considering the structural break in 1999. These findings imply that the development of policy models that give rise to long-range dependence in interest rates’ volatility could be very useful. The long–short-term interest rates spread has strong long-range dependence, which suggests that traditional tests of expectation hypothesis of the term structure of interest rates may be misspecified.

Suggested Citation

  • Cajueiro, Daniel O. & Tabak, Benjamin M., 2009. "Testing for long-range dependence in the Brazilian term structure of interest rates," Chaos, Solitons & Fractals, Elsevier, vol. 40(4), pages 1559-1573.
    • Handle: RePEc:eee:chsofr:v:40:y:2009:i:4:p:1559-1573
    DOI: 10.1016/j.chaos.2007.09.054
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