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Exploration of the Brazilian Term Structure in a Hidden Markov Framework

Exploration of the Brazilian Term Structure in a Hidden Markov Framework PDF Author: Mr.Richard Munclinger
Publisher: International Monetary Fund
ISBN: 1455211931
Category : Business & Economics
Languages : en
Pages : 33

Book Description
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.
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