Comparing Models for Forecasting the Yield Curve

Marco Matsumura and Ajax Moreira

No 174, Discussion Papers from Instituto de Pesquisa Econômica Aplicada - IPEA

Abstract: The evolution of the yields of different maturities is related and can be described by a reduced number of commom latent factors. Multifactor interest rate models of the finance literature, common factor models of the time series literature and others use this property. Each model has advantages and disadvantages, and it is an empirical matter to evaluate the performance of the approaches. This exercise compares 4 alternative models for the term structure using 3 different markets: the Brazilian domestic and sovereign market and the US market. A evolução das diversas maturidades das taxas de juros está relacionada e pode ser descrita por um número reduzido de variáveis latentes comuns. Os modelos de taxas de juros multivariados da literatura de finanças utilizam esta propriedade, assim como os modelos de fator comum da literatura de séries temporais, e modelos de decomposição da curva de juros. Cada um desses modelos tem vantagens e desvantagens, sendo uma questão empírica avaliar o desempenho dessas abordagens. Esse exercício compara a resposta de quatro modelos alternativos para a curva de juros, em três mercados diferentes: juros domésticos brasileiros, juros soberanos externos brasileiros, e juros domésticos dos Estados Unidos.

Pages: 28 pages
Date: 2015-01
New Economics Papers: this item is included in nep-for
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