English, Article, Journal or magazine article edition: Macro Factors and the Brazilian Yield Curve With no Arbitrage Models Marcos S. Matsumura; Ajax R. B. Moreira

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Macro Factors and the Brazilian Yield Curve With no Arbitrage Models
Author
  • Marcos S. Matsumura
  • Ajax R. B. Moreira
Physical Description
  • preprint
Notes
  • We use no arbitrage models with macro variables to study the interaction between the macroeconomy and the yield curve. This interaction is a key element for monetary policy and for forecasting. The model was used to analyze the Brazilian domestic financial market using a daily dataset and two versions of the model, one in continuous-time and estimated by maximum likelihood, and the other in discretetime and estimated by Monte Carlo Markov Chain (MCMC). Our objective is threefold: 1) To analyze the determinants of the Brazilian domestic term structure considering nominal shocks; 2) To compare the results of the discrete and the continuous time versions considering adherence, forecasting performance and monetary policy analysis; and 3) To evaluate the effect of restrictions on the transition and pricing equations over the model properties. Our main results are: 1) results from continuous and discrete versions are qualitatively and in most cases quantitatively equivalent; 2) Monetary Authorities are conservative in Brazil, smoothing short rate fluctuations; 3) inflation shock, or slope shock, depending on the model selected, are the main sources of long run fluctuations of nominal variables; and finally, 4) no arbitrage models showed lower forecasting performance than an unrestricted factor model.
  • RePEc:ipe:ipetds:1210
Language
  • English
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