International Capital Flows and Yields of Public Debt Bonds
The paper analyzes nominal yields of five-year fixed-rate Brazilian Domestic Federal Public Debt (DFPD) bonds in response to fluctuations in international net capital flows to Brazil for the period January 2007 to July 2012. The results show that estimation in differences with error correction obtains a long-run relationship between the yield, the foreign participation in the DFPD and the target Selic rate that reproduces previous results. When the ratio of net foreign long-term fixed-income investments relative to GDP is a substitute for foreign participation in the DFPD, the new explanatory variable is also significant in the long run, when the cointegrating equation includes the yield of five-year United States Treasury bonds. In turn, fiscal balance, investors’ risk aversion, output gap, the tax rate on financial transactions made by nonresident investors and the effective rate of reserve requirements influence the yields in the short run
References listed on IDEAS
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- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Miyajima, Ken & Mohanty, M.S. & Chan, Tracy, 2015.
"Emerging market local currency bonds: Diversification and stability,"
Emerging Markets Review,
Elsevier, vol. 22(C), pages 126-139.
- Ken Miyajima & Madhusudan Mohanty & Tracy Chan, 2012. "Emerging market local currency bonds: diversification and stability," BIS Working Papers 391, Bank for International Settlements.
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