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A Segmented and Observable Yield Curve for Colombia

Author

Listed:
  • Carlos Castro-Iragorri

    (Universidad del Rosario, Bogotá, Colombia)

  • Juan Felipe Peña

    (Universidad del Rosario, Bogotá, Colombia)

  • Cristhian Rodríguez

    (Universidad del Rosario, Bogotá, Colombia)

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.

Suggested Citation

  • Carlos Castro-Iragorri & Juan Felipe Peña & Cristhian Rodríguez, 2021. "A Segmented and Observable Yield Curve for Colombia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 179-200.
  • Handle: RePEc:cbk:journl:v:10:y:2021:i:2:p:179-200
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    References listed on IDEAS

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    More about this item

    Keywords

    Term structure; Nelson-Siegel; Preferred habitat theory.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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