Title: Characterising the Brazilian term structure of interest rates

Authors: Osmani Teixeira De Carvalho Guillen, Benjamin M. Tabak

Addresses: Banco Central do Brasil – Research Department, Av. Pres. Vargas 730, 7o andar, CEP: 20.071-001, Rio de Janeiro, RJ, Brazil; IBMEC Business School – Rio de Janeiro, Av. Presidente Wilson 118, 11o andar CEP 20.030-020, Rio de Janeiro, RJ, Brazil. ' Banco Central do Brasil – Research Department, SBS Quadra 3 Bloco B, Ed. Sede, 13 andar, Brasilia, DF, 700074-900, Brazil; Graduate Program in Economics, Universidade Catolica de Brasilia

Abstract: This paper studies the Brazilian term structure of interest rates and characterises how the term premia have changed over time. We employ a Kalman filter approach, which is extended to take into account regime switches and overlapping forecasts errors. Empirical evidence suggests that term premia depend on international global liquidity and domestic factors such as the composition of public debt and inflation volatility. These results provide important guidance for the formulation of fiscal and monetary policies.

Keywords: Brazil; term structure; interest rates; term premia; fiscal policy; monetary policy; regime switching; Kalman filter.

DOI: 10.1504/IJMEF.2009.024834

International Journal of Monetary Economics and Finance, 2009 Vol.2 No.2, pp.103 - 114

Published online: 01 May 2009 *

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