The role of no-arbitrage on forecasting: lessons from a parametric term structure model

Parametric term structure models have been successfully applied to innumerous problems in fixed income markets, including pricing, hedging, managing risk, as well as studying monetary policy implications. On their turn, dynamic term structure models, equipped with stronger economic structure, have been mainly adopted to price derivatives and explain empirical stylized facts. In this paper, we combine flavors of those two classes of models to test if no-arbitrage affects forecasting. We construct cross section (allowing arbitrages) and arbitrage-free versions of a parametric polynomial model to analyze how well they predict out-of-sample interest rates. Based on U.S. Treasury yield data, we find that no-arbitrage restrictions significantly improve forecasts. Arbitrage-free versions achieve overall smaller biases and Root Mean Square Errors for most maturities and forecasting horizons. Furthermore, a decomposition of forecasts into forward-rates and holding return premia indicates that the superior performance of no-arbitrage versions is due to a better identification of bond risk premium.

A general-equilibrium closed-form solution to the welfare costs of inflation (Forthcoming, Revista Brasileira de Economia)

This work presents closed-form solutions to Lucasís (2000) generalequilibrium expression for the welfare costs of ináation, as well as to the di§erence between the general-equlibrium measure and Baileyís (1956) partial-equilibrium measure. In Lucasís original work only numerical solutions are provided.

Oral history in Brazil: an assessment

This overview of the development of the oral history field in Brasil analyzes the different approaches used in the area, discusses its major topics of interest, and traces the organizational and historical paths of the country's most important oral history programs.