Recent Innovation in Benchmark Rates (BMR): Evidence from Influential Factors on Turkish Lira Overnight Reference Interest Rate with Machine Learning Algorithms

Depren et al. Financ Innov (2021) 7:44

20 Pages Posted: 22 Jun 2021

See all articles by Özer Depren

Özer Depren

Yapi Kredi Bank A.S.

Mustafa Tevfik Kartal

Borsa Istanbul

Serpil Kilic Depren

Yildiz Technical University - Statistics Department

Date Written: June 12, 2021

Abstract

Some countries have announced national benchmark rates while some others have been working on the recent trend in which the London Interbank Offered Rate (LIBOR) will be retired at the end of 2021. Considering that Turkey announced the Turkish Lira Overnight Reference Interest Rate (TLREF), this study examines the determinants of TLREF. In this context, three global determinants, five country-level macroeconomic determinants, and COVID-19 pandemic are considered by using daily data between December 28, 2018 and December 31, 2020 by performing machine learning algorithms and Ordinary Least Square. The empirical results show that (i) the most significant determinant is the amount of securities bought by Central Bank; (ii) country-level macroeconomic factors have a higher impact whereas global factors are less important, and the pandemic does not have a significant effect; (iii) Random Forest is the most accurate prediction model. Taking actions by considering the findings of the study, can be beneficial to support economic growth by achieving low-level benchmark rates.

Keywords: Benchmark Rate, Determinants, Machine Learning Algorithms, Turkey

JEL Classification: C40; E43; E44; G12

Suggested Citation

Depren, Özer and Kartal, Mustafa Tevfik and Depren, Serpil Kilic, Recent Innovation in Benchmark Rates (BMR): Evidence from Influential Factors on Turkish Lira Overnight Reference Interest Rate with Machine Learning Algorithms (June 12, 2021). Depren et al. Financ Innov (2021) 7:44, Available at SSRN: https://ssrn.com/abstract=3865657

Özer Depren

Yapi Kredi Bank A.S.

Istanbul
Turkey

Mustafa Tevfik Kartal (Contact Author)

Borsa Istanbul ( email )

Reşitpaşa Mah. Borsa İstanbul Cad. No: 4
Borsa İstanbul Cad. No: 4
Istanbul, 34467
Turkey

Serpil Kilic Depren

Yildiz Technical University - Statistics Department ( email )

Istanbul, 34349
Turkey

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