A Polynomial Term Structure Model with Macroeconomic Variables

Felipe Pinheiro (), Caio Almeida () and José Valentim Vicente ()
Additional contact information
Felipe Pinheiro: Banco Credit Suisse
José Valentim Vicente: Banco Central do Brasil

Brazilian Review of Finance, 2007, vol. 5, issue 1, 79-92

Abstract: Recently, a myriad of factor models including macroeconomic variables have been proposed to analyze the yield curve. We present an alternative factor model where term structure movements are captured by Legendre polynomials mimicking the statistical factor movements identified by Litterman e Scheinkmam (1991). We estimate the model with Brazilian Foreign Exchange Coupon data, adopting a Kalman filter, under two versions: the first uses only latent factors and the second includes macroeconomic variables. We study its ability to predict out-of-sample term structure movements, when compared to a random walk. We also discuss results on the impulse response function of macroeconomic variables.

Keywords: factor models; parametric term structure models; yield curve forecasting; Kalman filter (search for similar items in EconPapers)
JEL-codes: G10 G12 G13 (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations:

Downloads: (external link)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/download/1167/379 (application/pdf)
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/view/1167 (text/html)

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:brf:journl:v:5:y:2007:i:1:p:79-92

Access Statistics for this article

Brazilian Review of Finance is currently edited by Marcio Laurini

More articles in Brazilian Review of Finance from Brazilian Society of Finance
Bibliographic data for series maintained by Marcio Laurini ().