scholarly journals Evaluating the existence of structural change in the Brazilian term structure of interest rate: evidence based on Hansens cointegration models with structural break

2014 ◽  
Vol 8 (2) ◽  
pp. 211
Author(s):  
Emerson F. Marcal ◽  
Pedro L. Valls Pereira
Keyword(s):  
Structural Change ◽  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Risk Premium ◽  
Structural Break ◽  
Sample Period ◽  
Data Set ◽  
Risk Premiums ◽  
Vector Autoregressive

This paper investigates whether there is evidence of struc- tural change in the Brazilian term structure of interest rates. Multivari- ate cointegration techniques are used to verify this evidence. An econo- metric model is estimated which is a Vector Autoregressive Model with Error Correction Mechanism (VECM) with abrupt structural change formulated by Hansen [13]. Two datasets were analysed. The rst one contains a nominal interest rate with maturity up to three years. The second data set focuses on maturity up to one year. The rst data set focuses on a sample period from 1995 to 2010 and the second from 1998 to 2010. The frequency is monthly. The estimated models suggest the existence of structural change in the Brazilian term structure. It was possible to document the existence of multiple regimes using the tech- nique for both databases. The risk premium for dierent spreads varied considerably during the earliest period of both samples and seemed to converge to stable and lower values at the end of the sample period. Long-term risk premiums seemed to converge to international stand- ards, although the Brazilian term structure is still subject to liquidity problems for longer maturities.

scholarly journals The Pure Expectations Theory and Quarterly Interest Rate Premiums

2017 ◽  
Vol 7 (1) ◽  
pp. 161
Author(s):  
Samih Antoine Azar
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Risk Premium ◽  
Sampling Error ◽  
Small Sample ◽  
Short Term ◽  
Risk Premiums ◽  
Sample Bias ◽  
Conditional Tests ◽  
The Difference

The expectations theory posits that the long interest rate is an average of expected short term interest rates with the possibility of the existence of a risk premium. This paper looks upon fourteen samples of investments for which the difference in maturity is three months. All yields are actual yields and are adjusted to have the same maturities as the short rate. The evidence is strong for the pure expectations theory which predicts that the risk premiums are zero. This should not be surprising because the premium that we are looking for is merely 4 basis points per quarter. The contribution of this paper, besides giving support to the pure expectations theory, is to lay out the fundamental and basic methodology that one should follow in order to study other investments similar to ours. Both unconditional and conditional tests are performed. Because of sampling error and small-sample bias the unconditional tests may be preferable. 

scholarly journals CANDIDE et la monnaie

2009 ◽  
Vol 52 (1) ◽  
pp. 75-103
Author(s):  
Jean-Pierre Aubry ◽  
Pierre Duguay
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Structural Equations ◽  
Reduced Form ◽  
Real Sector ◽  
Short Term ◽  
The Real ◽  
Structure Equations

Abstract In this paper we deal with the financial sector of CANDIDE 1.1. We are concerned with the determination of the short-term interest rate, the term structure equations, and the channels through which monetary policy influences the real sector. The short-term rate is determined by a straightforward application of Keynesian liquidity preference theory. A serious problem arises from the directly estimated reduced form equation, which implies that the demand for high powered money, but not the demand for actual deposits, is a stable function of income and interest rates. The structural equations imply the opposite. In the term structure equations, allowance is made for the smaller variance of the long-term rates, but insufficient explanation is given for their sharper upward trend. This leads to an overstatement of the significance of the U.S. long-term rate that must perform the explanatory role. Moreover a strong structural hierarchy, by which the long Canada rate wags the industrial rate, is imposed without prior testing. In CANDIDE two channels of monetary influence are recognized: the costs of capital and the availability of credit. They affect the business fixed investment and housing sectors. The potential of the personal consumption sector is not recognized, the wealth and real balance effects are bypassed, the credit availability proxy is incorrect, the interest rate used in the real sector is nominal rather than real, and the specification of the housing sector is dubious.

An Empirical Bargaining Model with Left-Digit Bias: A Study on Auto Loan Monthly Payments

2021 ◽  
Author(s):  
Zhenling Jiang
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Large Data ◽  
The United States ◽  
Nash Bargaining ◽  
Bargaining Model ◽  
Data Set ◽  
Proposed Model ◽  
Lower Interest Rate ◽  
The Empirical Analysis

This paper studies price bargaining when both parties have left-digit bias when processing numbers. The empirical analysis focuses on the auto finance market in the United States, using a large data set of 35 million auto loans. Incorporating left-digit bias in bargaining is motivated by several intriguing observations. The scheduled monthly payments of auto loans bunch at both $9- and $0-ending digits, especially over $100 marks. In addition, $9-ending loans carry a higher interest rate, and $0-ending loans have a lower interest rate. We develop a Nash bargaining model that allows for left-digit bias from both consumers and finance managers of auto dealers. Results suggest that both parties are subject to this basic human bias: the perceived difference between $9- and the next $0-ending payments is larger than $1, especially between $99- and $00-ending payments. The proposed model can explain the phenomena of payments bunching and differential interest rates for loans with different ending digits. We use counterfactuals to show a nuanced impact of left-digit bias, which can both increase and decrease the payments. Overall, bias from both sides leads to a $33 increase in average payment per loan compared with a benchmark case with no bias. This paper was accepted by Matthew Shum, marketing.

scholarly journals Yield curve dynamics with macroeconomic factors in Iberian economies

2020 ◽  
Vol 10 (3) ◽  
pp. 193-203
Author(s):  
Isabel Maldonado ◽  
Carlos Pinho
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Yield Curve ◽  
Error Variance ◽  
Impact Factors ◽  
Strong Impact ◽  
Impulse Response Functions ◽  
Macroeconomic Factors ◽  
Vector Autoregressive ◽  
Future Evolution

Abstract The aim of this paper is to analyse the bidirectional relation between the term structure of interest rates components and macroeconomic factors. Using a factor augmented vector autoregressive model, impulse response functions and forecasting error variance decompositions we find evidence of a bidirectional relation between yield curve factors and the macroeconomic factors, with increased relevance of yield factors over it with increased forecasting horizons. The study was conduct for the two Iberian countries using information of public debt interest rates of Spain and Portugal and macroeconomic factors extracted from a set of macroeconomic variables, including indicators of activity, prices and confidence. Results show that the inclusion of confidence and macroeconomic factors in the analysis of the relationship between macroeconomics and interest rate structure is extremely relevant. The results obtained allow us to conclude that there is a strong impact of changes in macroeconomic factors on the term structure of interest rates, as well as a significant impact factors of the term structure in the future evolution of macroeconomic factors.

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