Efficient Yield Curve Estimation and Forecasting in Brazil

Ricardo Azevedo Araujo, Guilherme Moura () and Marcelo S. Portugal
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Ricardo Azevedo Araujo: Universidade de Brasilia (UnB)
Marcelo S. Portugal: Federal University of Rio Grande do Sul and CNPq, Brazil Abstract: Modeling the term structure of interest rate is very important to macroeconomists and financial market practitioners in general. In this paper, we used the Diebold-Li interpretation to the Nelson Siegel model in order to fit and forecast the Brazilian yield curve. The data consisted of daily observations of the most liquid future ID yields traded in the BM&F from January 2006 to February 2009. Differently from the literature on the Brazilian yield curve, where the Diebold-Li model is estimated through the two-step method, the model herein is put in the state-space form, and the parameters are simultaneously and efficiently estimated using the Kalman filter. The results obtained for the fit and for the forecast showed that the Kalman filter is the most suitable method for the estimation of the model, generating better forecast for all maturities when we consider the forecasting horizons of one and three months.

Economia, 2010, vol. 11, issue 1, 27_51

Keywords: Term Structure of the Interest Rate; Yield Curve; State-Space Model; Kalman Filter. (search for similar items in EconPapers)
JEL-codes: C53 E43 G17 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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