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Forecasting the intraday market price of money

Andrea Monticini and Francesco Ravazzolo ()

No def010, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: Central banks' operations and eciency arguments would suggest that the intraday interest rate should be set to zero. However, a liquidity crisis introduces frictions related to news, which can cause an upward jump of the intraday rate. This paper documents that these dynamics can be partially predicted during turbulent times. Long memory approaches or a combination of them to account for model uncertainty outperform random walk, autoregressive and moving average benchmarks in terms of point and density forecasting. The relative accuracy is higher when the full distribution is predicted. We also document that such statistical accuracy can provide economic gains in investment strategies based on lending in the intraday market.

Keywords: interbank market; intraday interest rate; forecasting; density forecasting; policy tools. (search for similar items in EconPapers)
JEL-codes: C22 C53 E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for, nep-mac and nep-mon
Date: 2014-02
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http://dipartimenti.unicatt.it/economia-finanza-def010.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Forecasting the intraday market price of money (2014) Downloads
Working Paper: Forecasting the intraday market price of money (2011) Downloads
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