Original article Mathematical and Quantitative Methods

YIELD CURVE MODELLING AND FORECASTING IN AN UNDEVELOPED FINANCIAL MARKET: THE CASE OF BULGARIA

Martina Makarieva Makarieva - Sofia University St. Kliment Ohridski
Received: 31 May 2022
Revised:
Published:
Downloads: 0
Citations: 0
Issue 2/2021
JEL C51 C53 E44
DOI https://doi.org/10.56497/etj2166202

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 in-sample 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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