Karachi Inter-Bank Offered Rate (KIBOR) Forecasting: Box-Jenkins (ARIMA) Testing Approach

E&M Economics and Management, 20(2), 188-198

11 Pages Posted: 5 Sep 2017

See all articles by Rizwan Ahmed

Rizwan Ahmed

Indus University

Jolita Vveinhardt

Vytautas Magnus University; Lithuanian Sports University

Nawaz Ahmad

RTS (Research, Trainings, and Solutions); Institute of Business Management (IoBM)

Dalia Streimikiene

Lithuanian Energy Institute

Date Written: July 1, 2017

Abstract

The aim of this paper is to find out the forecasting model that is the one, which gives the best output of forecasting. So that policy makers can be benefited from this research. Thus, this research will also evaluate the performance of ARMA, and Box-Jenkins (ARIMA) forecasting models for KIBOR in case of Pakistan. Karachi Inter Bank Offer Rates (KIBOR) is the average interest rate at which banks want to lend money to other banks. KIBOR as a benchmark, to encourage transparency, to promote consistency in market based pricing and to improve management of the market risk undertaken by banks. Researchers have used 6-month rates of KIBOR; data is of 4 years from 2012 to 2015. Therefore, keeping in view of the importance of KIBOR, the objective of this research is to forecast, Karachi Inter Bank Offer Rates (KIBOR) using time series autoregressive moving average (ARMA), Box-Jenkins (ARIMA) model. The study is significant at 1%, the forecasting of rates shows that the rates are very close to the actual one and it further concluded that the applied model Box-Jenkins (ARIMA) is perfect for the forecasting. The results of AIC revealed that there is no evidence of autocorrelation and there is no sample error and the model is useful and robust. It is finally concluded that the forecasting of KIBOR rates by ARIMA (Box-Jenkins) model is very helpful for policy makers. The results extracted from this model are reliable for making any forecasting and also beneficial for government functionaries, financial experts and policy makers of financial institutions in order to device their future strategies.

Keywords: KIBOR, ARMA, Box-Jenkins, ARIMA, forecasting

JEL Classification: B23, C22, C53, E4, E5, E47

Suggested Citation

Raheem, Ahmed and Vveinhardt, Jolita and Ahmad, Nawaz and Streimikiene, Dalia, Karachi Inter-Bank Offered Rate (KIBOR) Forecasting: Box-Jenkins (ARIMA) Testing Approach (July 1, 2017). E&M Economics and Management, 20(2), 188-198. Available at SSRN: https://ssrn.com/abstract=3030109

Ahmed Raheem

Indus University ( email )

ST-2D, Block 17, Gulshan-e-Iqbal
Gulshan-e-Iqbal
Karachi, Sindh 75300
Pakistan

Jolita Vveinhardt

Vytautas Magnus University ( email )

S. Daukanto 28
Kaunas, LT- 44254
Lithuania

Lithuanian Sports University ( email )

Sporto str. 6
Kaunas, LT-44221
Lithuania

Nawaz Ahmad (Contact Author)

RTS (Research, Trainings, and Solutions) ( email )

9th Nishat Lane, DHA 6
9th Nishat Lane, DHA 6
Karachi, Sindh 75500
Pakistan
00923009292422 (Phone)

Institute of Business Management (IoBM) ( email )

Plot # 84
Korangi Creek
Karachi, Sindh 75190
Pakistan

HOME PAGE: http://www.faculty.iobm.edu.pk/staff/nawaz-ahmad/

Dalia Streimikiene

Lithuanian Energy Institute ( email )

Breslaujos 3
Kaunas LT-44403
Lithuania

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