Testing the Expectations Hypothesis in the Brazilian Term Structure of Interest Rates

Benjamin Tabak and Sandro Canesso de Andrade ()
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Sandro Canesso de Andrade: Banco Central do Brasil

Brazilian Review of Finance, 2003, vol. 1, issue 1, 19-43

Abstract: We test the Expectations Hypothesis (EH) plus Rational Expectations (RE) in the Brazilian term-structure of interest rates, using maturities ranging from 1 month to 12 months, and daily data from 1995 to 2000. We rely on two methodologies based on single-equation regressions. Our results indicate a rejection of the EH plus RE, specially at the longer maturity. This may have important implications for the rational expectations macro-modeling currently being used to evaluate the conduct of monetary policy in Brazil. We also show the risk premium in the yield curve are positively related to the covered interest rate differential and to the volatility of interest rates.

Keywords: term structure; expectation hypothesis; risk premium (search for similar items in EconPapers)
JEL-codes: E43 G14 G15 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (6)

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Working Paper: Testing the Expectations Hypothesis in the Brazilian Term Structure of Interest Rates (2001)
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