Testing for long-range dependence in the Brazilian term structure of interest rates

Daniel Cajueiro and Benjamin Tabak

Chaos, Solitons & Fractals, 2009, vol. 40, issue 4, 1559-1573

Abstract: This paper presents empirical evidence of fractional dynamics in interest rates for different maturities for Brazil. A variation of a newly developed test for long-range dependence, the V/S statistic, with a post-blackening bootstrap is employed. Results suggest that Brazilian interest rates possess strong long-range dependence in volatility, even when considering the structural break in 1999. These findings imply that the development of policy models that give rise to long-range dependence in interest rates’ volatility could be very useful. The long–short-term interest rates spread has strong long-range dependence, which suggests that traditional tests of expectation hypothesis of the term structure of interest rates may be misspecified.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:40:y:2009:i:4:p:1559-1573

DOI: 10.1016/j.chaos.2007.09.054

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