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Overreaction of yield spreads and movements of Brazilian interest ratest

Brazilian Review of Econometrics

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Title Overreaction of yield spreads and movements of Brazilian interest ratest
Overreaction of yield spreads and movements of Brazilian interest ratest
 
Creator Brito, Ricardo D.
Duarte, Angelo José Mont' Alverne
Guillen, Osmani Teixeira de Carvalho
 
Subject term structure of interest rates; expectations hypothesis; rational expectations; overreaction.
E43; G13
term structure of interest rates; expectations hypothesis; rational expectations; overreaction.
E43; G13
 
Description This paper tests the rational expectations hypothesis (REH) for Brazil from July 1996 to December 2001. For any pair of maturities between one day and one year, it shows that the yield spread between a longer-term and a shorterterm interest rate is an imprecise predictor of the short-term movements in the longer-term interest rate and of the long-term movements in the shorter-term interest rate. Moreover, yield spreads highly correlated with the rational expectations forecasts of future changes in the shorter-term rate, but significantly more volatile than these, suggest the rejection of the REB. The alternative hypothesis of overreaction of the yield spread to the expectation of future changes in the shorter-term rate seems a reasonable explanation to these findings, and can be rationalized by a monetary policy of interest rate smoothing.
Este artigo testa a hipótese das expectativas racionais (HER) para 0 Brasil de julho de 1996 a dezemhro de 2001. Para qualquer par de prazos entre 1 dia e 1 ano, mostra-se que o diferencial de rendimento entre uma taxa de juros longa e uma taxa de juros curta é um estimador impreciso dos movimentos de curto prazo da taxa longa e dos movimentos de longo prazo da taxa curta. Adicionalmente, diferenciais de rendimento altamente correlacionados com as previsões de expectativas racionais das futuras mudanças da taxa curta, mas significativamente mais voláteis que estas, sugerem a rejeição da HER. A hipótese alternativa de reação exagerada do diferencial à expectativa das futuras variações da taxas curta parece uma explicação razoável para tais evidências, e pode ser racionalizada pela política monetária de suavização da taxa de juros.
 
Publisher Sociedade Brasileira de Econometria
 
Date 2004-05-01
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/2702
10.12660/bre.v24n12004.2702
 
Source Brazilian Review of Econometrics; Vol 24, No 1 (2004); 1-55
Brazilian Review of Econometrics; Vol 24, No 1 (2004); 1-55
1980-2447
 
Language eng
 
Relation http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/2702/1645