Universal Journal of Accounting and Finance Vol. 9(6), pp. 1332 - 1341
DOI: 10.13189/ujaf.2021.090612
Reprint (PDF) (477Kb)


Modeling Euribor Rates Volatility: Application of the GARCH Model


Llesh Lleshaj 1,*, Dorina Kripa 2
1 Faculty of Economy, University of Tirana, Albania
2 Department of Finance, Faculty of Economy, University of Tirana, Albania

ABSTRACT

Euribor (Euro Interbank Offered Rate) is considered to be the most important base rate for all types of financial products like interest rate swaps, interest rate futures, saving accounts and mortgages. Euribor rates turned negative for the first time in January 2015 and have been negative ever since. In recent years, several European central banks have imposed negative interest rates on commercial banks, which is the only way to stimulate their nations' economies. Under these circumstances, the purpose of this study is to estimate the optimal equilibrium of the negative rates which are still increasing constantly. This fact raises doubts about the financial stability in many countries and the effect of monetary policy in stimulating economic growth in European countries. This study has analyzed the volatility of the Euribor rates related to the daily time series 2015-2021. Advanced volatility econometric methods are applied to GARCH models and volatility forecasting in the long-run equilibrium. The optimal model for the weekly and monthly maturity rates is identified; however, the larger the ARCH(p) and lag-variance(q) value we test, the poorer the performance of the obtained model is. Practical implications ought to be taken into consideration by the banking sector and other financial institutions.

KEYWORDS
Euribor, GARCH Volatility Modeling, Optimal Long-Run Equilibrium

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Llesh Lleshaj , Dorina Kripa , "Modeling Euribor Rates Volatility: Application of the GARCH Model," Universal Journal of Accounting and Finance, Vol. 9, No. 6, pp. 1332 - 1341, 2021. DOI: 10.13189/ujaf.2021.090612.

(b). APA Format:
Llesh Lleshaj , Dorina Kripa (2021). Modeling Euribor Rates Volatility: Application of the GARCH Model. Universal Journal of Accounting and Finance, 9(6), 1332 - 1341. DOI: 10.13189/ujaf.2021.090612.