Estimating the Fractional Order of Integration of Yields in the Brazilian Fixed Income Market

Benjamin Tabak

Economic Notes, 2007, vol. 36, issue 3, 231-246

Abstract: This paper presents evidence that yields on the Brazilian fixed income market are fractionally integrated, and compares the period before and after the implementation of the Inflation Targeting (IT) regime. The paper employs the commonly used GPH estimator and recently developed wavelets‐based estimator of long memory. Empirical results suggest that interest rates are fractionally integrated and that interest rate spreads are fractionally integrated, with a higher order of integration in the period after the implementation of the IT regime. These results have important implications for the development of macroeconomic models for the Brazilian economy and for long‐term forecasting. Furthermore, they imply that shocks to interest rates are long‐lived.

Date: 2007
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https://doi.org/10.1111/j.1468-0300.2007.00185.x

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