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Forecasting the Yield Curve for Brazil

Author

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  • Daniel O. Cajueiro
  • Jose A. Divino
  • Benjamin M. Tabak

Abstract

In this paper, the recent Functional Signal Plus Noise - Equilibrium Correction Model (FSN-ECM) developed in Bowsher and Meeks (2008) and the model developed by Diebold and Li (2006) (DL) are applied to forecasting 12-dimensional yields for Brazil at the one, three, six, and twelve months ahead horizons. Empirical results suggest that the FSN-ECM produces very good forecasts at the short-term (one month) outperforming both the DL and random walk benchmarks. However, the DL model produces better forecasts at the long-term. These results suggest that different models may be used to forecast the yield curve, depending on the forecasting horizon. If our concern is on long-term forecasts as it is usual for institutional investors, then the DL model should be preferred. Keywords: Yield Curve, Forecast, Emerging Markets, Interest Rates

Suggested Citation

  • Daniel O. Cajueiro & Jose A. Divino & Benjamin M. Tabak, 2009. "Forecasting the Yield Curve for Brazil," Working Papers Series 197, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:197
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps197.pdf
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    Cited by:

    1. Wali ULLAH & Khadija Malik BARI, 2018. "The Term Structure of Government Bond Yields in an Emerging Market," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 5-28, September.
    2. Joao Frois Caldeira & Guilherme Valle Moura & Marcelo Savino Portugal, 2011. "Efficient Interest Ratecurve Estimation And Forecasting In Brazil," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 133, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

    More about this item

    Keywords

    yield curve; forecast; emerging markets; interest rates;
    All these keywords.

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