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Yield curve modelling and forecasting in an undeveloped financial market: The case of Bulgaria

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  • Martina Makarieva

Abstract

An attempt is made to apply the popular Nelson-Siegel-Svensson parametric yield curve model in the case of an illiquid and undeveloped financial market. The findings suggest that the financial market’s illiquidity does not seem to diminish or distort the ability of the yield curve model to be used as a tool for deriving a clear picture of the shape and the dynamic of the yield curve. The insample and out-of-sample performance of the model for fitting the yield curve is further explored and illustrates how the modelling approach can provide a consistent framework for projecting the yield curve conditional macroeconomic scenarios that could be widely used for policy simulations.

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  • Martina Makarieva, 2021. "Yield curve modelling and forecasting in an undeveloped financial market: The case of Bulgaria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 61-83,84-10.
    • Handle: RePEc:bas:econth:y:2021:i:2:p:61-83,84-104
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    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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