Marçal, Emerson F. and Valls Pereira, Pedro L. and Abbara, Omar (2009): Testing the long-run implications of the expectation hypothesis using cointegration techniques with structural change.
Download (153Kb) | Preview
This paper investigates whether or not multivariate cointegrated process with structural change can describe the Brazilian term structure of interest rate data from 1995 to 2006. In this work the break point and the number of cointegrated vector are assumed to be known. The estimated model has four regimes. Only three of them are statistically different. The first starts at the beginning of the sample and goes until September of 1997. The second starts at October of 1997 until December of 1998. The third starts at January of 1999 and goes until the end of the sample. It is used monthly data. Models that allows for some similarities across the regimes are also estimated and tested. The models are estimated using the Generalized Reduced-Rank Regressions developed by Hansen (2003). All imposed restrictions can be tested using likelihood ratio test with standard asymptotic qui-squared distribution. The results of the paper show evidence in favor of the long run implications of the expectation hypothesis for Brazil.
|Item Type:||MPRA Paper|
|Original Title:||Testing the long-run implications of the expectation hypothesis using cointegration techniques with structural change|
|Keywords:||Term structure, cointegration, structural change|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection
|Depositing User:||Pedro L. Valls Pereira|
|Date Deposited:||10. Jun 2009 06:04|
|Last Modified:||14. Feb 2013 16:36|
Boswijk, H. Peter, and Y. Zu, 2005, Testing for Cointegration with Nonstationary Volatility, (Tinbergen Institute & Amsterdam School of Economics).
Brito, R. D., O. T. C. Guillen, and A. J. M. Duarte, 2004, Overreaction of yield spreads and movements of Brazilian interest rate, Revista de Econometria 24, 1-55.
Campbell, J, and R. J. Shiller, 1991, Yield Spreads and Interest Rate Movements: A Bird's Eye View, Review of Economic Studies 58, 419-514.
Cuthbertson, Keith, and Dirk Nitzsche, 2005. Quantitative Financial Economics (John Wiley & Sons Ltd., West Sussex).
Gallmeyer, Michael F., Burton Hollifield, and Stanley E. Zin, 2005, Taylor Rules,
McCallum Rules and the Term Structure of Interest Rates, NBER Working Paper (NBER, Cambridge).
Gonzalo, J., and C. W. J. Granger, 1995, Estimation of Common Long-Memory Components in Cointegrated Systems, Journal of business and Economics Statistics 13.
Hansen, Peter Reinhard, 2003, Structural changes in the cointegrated vector autoregressive model, Journal of Econometrics 114, 261-295.
Hicks, John, 1946. Value and Capital (Oxford University Press, Oxford).
Johansen, Soren, 1988, Statistical Analysis of cointegration vectors, Journal of Economic Dynamics and Control 12, 231-254.
Johansen, Soren, and Anders Rygh Swensen, 1999, Testing exact rational expectations in cointegrated vector autoregressive models, Journal of Econometrics 93, 73-91.
Johansen, Soren, and Anders Rygh Swensen, 2003, More on Testing Exact Rational Expectations in Cointegrated Vector Autoregressive Models:Restricted Drift Terms, Discussion Papers 348 (University of Oslo, Oslo).
Keynes, J. M., 1930. Treatise on Money.
Lima, A. M., and J. V. Isler, 2003, A hipótese das expectativas na estrutura a termo da taxa de juros no Brasil: Uma aplicação de modelos a valor presente, Revista Brasileira de Economia 57.
Marçal, E. F., 2004, Ensaios sobre eficiência, cointegração, componentes comuns, não linearidades na variância nos mercados financeiros: um estudo da estrutura a termo das taxas de juros e da volatilidade de títulos da dívida soberana., Departamento de Economia (Univesidade de São Paulo, São Paulo).
Marçal, E. F., and P. L. Valls Pereira, 2007, A Estrutura a Termo das Taxas de Juros no Brasil: testando a hipóteses de Expectativas, Pesquisa e Planejamento Econômico 37, 113-147.
McCallum, B. T., 1994, Monetary Policy and the Term Structure of Interest Rate, Economic Quartely 91, 1-21.
Rahbek, Anders, Ernst Hansen, and Jonathan G. Dennis, 2002, ARCH Innovation and their impact on Cointegration Rank Testing, (University of Copenhagen, Copenhagen).
Seo, Byeongseon, 2003, Non linear mean reversion in the term structure of interest rate, Journal of Economic Dynamics and Control 27, 2243-2265.
Serna, Maria Isabel Martinez, and Eliseo Navarro Arribas, 2006, The expectations theory of the term structure of interest rates and monetary policy, Social Science Reasearch Network (SSRN).
Shiller, R. J., 1990, The term structure of interest rate, in Benjamin M. Friedman, and Frank H. Hahn, eds.: Handbook of Monetary Economics (North-Holland).
Tse, Y. and A. Tsui, 2002, A Multivariate GARCH Model with Time-Varying Correlations, Journal of Business and Economic Statistics,20, 351-362