Macro Factors and the Brazilian Yield Curve With no Arbitrage Models
Marcos Matsumura and
Ajax Moreira (ajaxmoreira@gmail.com)
No 1210, Discussion Papers from Instituto de Pesquisa Econômica Aplicada - IPEA
Abstract:
We use no arbitrage models with macro variables to study the interaction between the macroeconomy and the yield curve. This interaction is a key element for monetary policy and for forecasting. The model was used to analyze the Brazilian domestic financial market using a daily dataset and two versions of the model, one in continuous-time and estimated by maximum likelihood, and the other in discretetime and estimated by Monte Carlo Markov Chain (MCMC). Our objective is threefold: 1) To analyze the determinants of the Brazilian domestic term structure considering nominal shocks; 2) To compare the results of the discrete and the continuous time versions considering adherence, forecasting performance and monetary policy analysis; and 3) To evaluate the effect of restrictions on the transition and pricing equations over the model properties. Our main results are: 1) results from continuous and discrete versions are qualitatively and in most cases quantitatively equivalent; 2) Monetary Authorities are conservative in Brazil, smoothing short rate fluctuations; 3) inflation shock, or slope shock, depending on the model selected, are the main sources of long run fluctuations of nominal variables; and finally, 4) no arbitrage models showed lower forecasting performance than an unrestricted factor model.
Pages: 37 pages
Date: 2006-08
New Economics Papers: this item is included in nep-for and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (6)
Downloads: (external link)
http://www.ipea.gov.br/portal/images/stories/PDFs/TDs/td_1210.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:ipe:ipetds:1210
Access Statistics for this paper
More papers in Discussion Papers from Instituto de Pesquisa Econômica Aplicada - IPEA Contact information at EDIRC.
Bibliographic data for series maintained by Fabio Schiavinatto (fabio.schiavinatto@ipea.gov.br).