A Segmented and Observable Yield Curve for Colombia

Carlos Castro-Iragorri (), Juan Felipe Peña () and Cristhian Rodríguez ()
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Carlos Castro-Iragorri: Universidad del Rosario, Bogotá, Colombia
Juan Felipe Peña: Universidad del Rosario, Bogotá, Colombia
Cristhian Rodríguez: Universidad del Rosario, Bogotá, Colombia

Journal of Central Banking Theory and Practice, 2021, vol. 10, issue 2, 179-200

Abstract: Following (Almeida, Ardison, Kubudi, Simonsen, & Vicente, 2018) we implement a segmented three factor Nelson-Siegel model for the yield curve using daily observable bond prices and short term interbank rates for Colombia. The flexible estimation for each segment (short, medium, and long) provides an improvement over the classical Nelson-Siegel approach in particular in terms of in-sample and out-of-sample forecasting performance. A segmented term structure model based on observable bond prices provides a tool closer to the needs of practitioners in terms of reproducing the market quotes and allowing for independent local shocks in the different segments of the curve.

Keywords: Term structure; Nelson-Siegel; Preferred habitat theory. (search for similar items in EconPapers)
JEL-codes: C53 C58 E43 G12 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:10:y:2021:i:2:p:179-200

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