The influence of global uncertainty and financial shocks, and sovereign risk shock on the Brazilian term structure of interest rate

Mauro Ferreira and Joice Figueiredo
Additional contact information
Mauro Ferreira: Cedeplar/UFMG
Joice Figueiredo: Siglasul Consultoria

No 674, Textos para Discussão Cedeplar-UFMG from Cedeplar, Universidade Federal de Minas Gerais

Abstract: Global and sovereign risk shocks significantly influence the business cycle in emerging markets. We examine their impact on the nominal and real term structure of interest rates (TIR) and the respective inflation risk premium (irp)) using a SVAR model for Brazil that also includes key macroeconomic variables. An adverse global uncertainty shock steepens both nominal and real TIR by reducing short-term yields, while irp shows less responsiveness. A positive shock to the US 3-year rate (us3yr) elevates nominal and real TIR but flattens their slopes due to a lesser increase at longer maturities; meanwhile, irp rises and becomes steeper. An adverse sovereign risk shock similarly pushes nominal and real TIR, and irp, upward, increasing their slopes. The sign of the covariance of irp with economic activity and inflation is shock-dependent, as is the relationship between the covariance of these variables and irp. Global uncertainty shocks explain approximately 22% of the forecast error variance (FEV) for 1-year real rate, being less impactful for longer maturities, nominal rates, and irp. Shocks to us3yr account for at least 25% of the FEV for nominal and real rates, and irp. Sovereign risk shocks also contribute substantially for FEV of nominal and real yields, and irp.

Keywords: Term structure of interest rate; inflation risk premium; sovereign risk; uncertainty; US interest rate; SVAR. (search for similar items in EconPapers)
JEL-codes: C32 E43 E44 E47 F41 G15 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2024-09
New Economics Papers: this item is included in nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cedeplar.ufmg.br/pesquisas/td/TD%20674.pdf (application/pdf)

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:cdp:texdis:td674

Ordering information: This working paper can be ordered from
Cedeplar-FACE-UFMG Av. Antonio Carlos, 6627 Belo Horizonte, MG 31270-901 Brazil

Access Statistics for this paper

More papers in Textos para Discussão Cedeplar-UFMG from Cedeplar, Universidade Federal de Minas Gerais Cedeplar-FACE-UFMG Av. Antonio Carlos, 6627 Belo Horizonte, MG 31270-901 Brazil. Contact information at EDIRC.
Bibliographic data for series maintained by Gustavo Britto ().