Impact of macroeconomic surprises on the brazilian yield curve and expected inflation

Announcements of macroeconomic data can contain unanticipated shocks that impact on the term structure of interest rates, a highly relevant topic for market agents and monetary authorities. The present study investigates how unexpected variations in Brazilian and U.S. macroeconomic indicators affect the term structure of interest rates and expected inflation in Brazil. Using daily data from March 2005 to July 2011, we employ a vector error-correction model in order to take into account the long-term equilibrium among different maturities of the yield curve and the inflation expectations curve. In general, we find empirical evidence that macroeconomic announcement surprises, domestic (Brazilian) and external (U.S. American), which lead the market to believe that there might be a higher risk of inflation or an overheated economy, raise the nominal yield curves and, in some cases, affect the real yield curve and the expected inflation. Surprisingly, in relation to the efficient-market hypothesis, we also find that some macroeconomic surprises have a lagged effect on the yield curve, indicating over- and undershooting as well as delayed responses.