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.
Highlights
Euro Interbank Offer Rate (Euribor) as a reference rate is constructed from the average interest rate at which Eurozone banks offer unsecured short-term lending on the inter-bank market
The Euribor data series is taken from official Thomson Reuters daily publications [34], the time when Euribor rates started performing on negative values)
From January 2015 until now, Euribor rates have been performing at negative rates
Summary
Euro Interbank Offer Rate (Euribor) as a reference rate is constructed from the average interest rate at which Eurozone banks offer unsecured short-term lending on the inter-bank market. The maturities on loans used to calculate Euribor often range from one week to one year (which makes Euribor an index reference) These Euribor rates, which are updated daily, represent the average interest rate that Eurozone banks charge one another for uncollateralized loans. There are two prevailing views: (1) Structural factors have pushed interest rates to record low levels These structural factors include demographics and longer life expectancy, which affects individuals' propensity to save and invest. (2) The lower interest rates are a reaction to the high financial leverage levels, which contributed to the global financial crisis According to this view, lower interest rates are necessary to facilitate the deleveraging process, thereby they are expected to return to normal in the future
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
