Estimation of the zero-coupon yield curve for Peru

This paper estimates two models for the yield curve in soles for Peru: the Nelson & Siegel (1987) model and the Svensson (1994) model. It compares the performance of both models in terms of fit, flexibility, and parameter stability, and evaluates alternative estimation objective functions. The Svensson model provides the best fit; however, it is less stable when insufficient data are available for the various maturities of the yield curve—due to the absence of issuances or prices when secondary market trading is in its early stages—in which case the Nelson & Siegel model is preferable. The final section demonstrates the use of estimated zero-coupon yield curves as a source of information for central banks regarding market expectations for the future evolution of the interbank rate. (Audio: Department of Economic Publications)