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Exploration of the Brazilian Term Structure in a Hidden Markov Framework

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  • Mr. Richard Munclinger

Abstract

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.

Suggested Citation

  • Mr. Richard Munclinger, 2011. "Exploration of the Brazilian Term Structure in a Hidden Markov Framework," IMF Working Papers 2011/022, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2011/022
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