SERIAL PROPERTIES AND FORECASTS OF LIBOR

The London Interbank Offer Rate, LIBOR, is the rate prime banks offer to pay on Eurodollar deposits available to other prime banks for a given maturity. The global nature of the market and volume of trading in Eurodollars are both responsible for making LIBOR a widely accepted measure of floating rates on the dollar. This study explores the time series properties of the LIBOR rate and tests alternative specifications for the univariate time series model. Various time series models are used f or a variety of LIBOR maturities. The findings suggest that significant disturbances to traditional autoregressive models occur making GARCH and Kalman Filter forecasting models appropriate. The Kalman Filter model provides the best performance in one-step-ahead forecasts over a holdout period.