How Will Brexit Impact Deposit Balances in the UK

Abstract

Over the last few years an hypothesis of referendum about the presence in European Union (EU) was emerging in the United Kingdom (UK) based on several political and economic problems around Europe. Nowadays, the EU is the UK’s largest trade partner. For this reason, ‘Brexit’ would lower trade between both parties. The present research will quantify the impacts of ‘Brexit’ in the Monetary Financial Institutions’ (MFI’s) deposits with an asymmetric volatility verified in the currency market. Asymmetric GARCH-family models, such as the TARCH, will be used to modeling markets’ returns that are heavily affected by political events, like the ‘Brexit’. The analysis is subsequently extended to a Holt method for forecasting the Sight Deposits in UK MFI with fan chart. This research considers the amounts outstanding of sterling liabilities in the MFI’s balance sheet (excluding central bank). To determine the uncertainty in the fan charts we will consider the extreme asymmetric volatility in the currency market.