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Macroeconomic Determinants of the Interest Rate Term Structure: A Svensson Model Analysis

Author

Listed:
  • Cristiane Benetti

    (Finance Department, ICN Business School, CEREFIGE, Université de Lorraine, 54000 Nancy, France)

  • José Monteiro Varanda Neto

    (Banco do Nordeste do Brasil, Fortaleza 60743902, Brazil)

  • Rogério Mori

    (Economics Department, FGV EESP, Sao Paulo 01313020, Brazil)

Abstract

This study develops a model to predict and explain short-term fluctuations in the Brazilian local currency interest rate term structure. The model relies on the potential relationship between these movements and key macroeconomic factors. The methodology consists of two stages. First, the Svensson model is applied to fit the daily yield curve data. This involves maximizing the R 2 statistic in an OLS regression, following the Nelson–Siegel approach. The median decay parameters are then fixed for subsequent estimations. In the second stage, with the daily yield curve estimates in hand, another OLS regression is conducted. This regression incorporates the idea that Svensson’s betas are influenced by macroeconomic variables.

Suggested Citation

  • Cristiane Benetti & José Monteiro Varanda Neto & Rogério Mori, 2025. "Macroeconomic Determinants of the Interest Rate Term Structure: A Svensson Model Analysis," Economies, MDPI, vol. 13(4), pages 1-21, April.
    • Handle: RePEc:gam:jecomi:v:13:y:2025:i:4:p:108-:d:1634862
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    References listed on IDEAS

    as
    1. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
    2. Sudarshan Kumar & Vineet Virmani, 2022. "Term structure estimation with liquidity-adjusted Affine Nelson Siegel model: A nonlinear state space approach applied to the Indian bond market," Applied Economics, Taylor & Francis Journals, vol. 54(6), pages 648-669, February.
    3. Hull, John & White, Alan, 1990. "Valuing Derivative Securities Using the Explicit Finite Difference Method," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(1), pages 87-100, March.
    4. Renata Tavanielli & Márcio Laurini, 2023. "Yield Curve Models with Regime Changes: An Analysis for the Brazilian Interest Rate Market," Mathematics, MDPI, vol. 11(11), pages 1-28, June.
    5. João Caldeira & Guilherme Moura & André Santos, 2015. "Measuring Risk in Fixed Income Portfolios using Yield Curve Models," Computational Economics, Springer;Society for Computational Economics, vol. 46(1), pages 65-82, June.
    6. João F. Caldeira & Werley C. Cordeiro & Esther Ruiz & André A.P. Santos, 2025. "Forecasting the yield curve: the role of additional and time‐varying decay parameters, conditional heteroscedasticity, and macro‐economic factors," Journal of Time Series Analysis, Wiley Blackwell, vol. 46(2), pages 258-285, March.
    Full references (including those not matched with items on IDEAS)

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