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Forecasting the intraday market price of money

Author

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  • Andrea Monticini

    (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)

  • Francesco Ravazzolo

    (Norges Bank and BI Norwegian Business School)

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.

Suggested Citation

  • Andrea Monticini & Francesco Ravazzolo, 2014. "Forecasting the intraday market price of money," DISCE - Working Papers del Dipartimento di Economia e Finanza def010, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    • Handle: RePEc:ctc:serie1:def010
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    More about this item

    Keywords

    interbank market; intraday interest rate; forecasting; density forecasting; policy tools.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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