Exploration of the Brazilian Term Structure in a Hidden Markov Framework
Electronic Access:
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Summary:
We apply a hidden Markov model of the term structure to modeling the Brazilian swap rate curve. We examine the model's characteristics and its performance in describing the cross-sectional and time-series dynamics of the term structure. Two regimes are identified, a high level and a high volatility regime and a low level and low volatility regime. Both regimes are persistent and are explained by the level and the slope of the term structure. The model is estimated using a Bayesian MCM algorithm that produces consistent standard errors and a reliable method for testing the differences between the model parameters.
Series:
Working Paper No. 2011/022
Subject:
Econometric analysis Financial regulation and supervision Financial services Inflation Market risk Markov-switching models Prices Time series analysis Yield curve
English
Publication Date:
January 1, 2011
ISBN/ISSN:
9781455211937/1018-5941
Stock No:
WPIEA2011022
Pages:
31
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