A0914
Title: Forecasting lending rates in the euro area: Application of the advanced econometric methods
Authors: Vija Micune - Latvia\'s Development Finance Institution Altum and University of Latvia (Latvia) [presenting]
Abstract: The novel econometric approach of the quantile factor model is employed to deliver a more nuanced characterization and improved forecast of selected bank lending rates across multiple countries within the euro area. The research utilises, as explanatory variables in the model, not only traditional determinants of lending rates such as prevailing market interest rates, but also incorporates less conventional factors, including macro risk and credit risk. The accuracy and reliability of the results are evaluated through comparative analysis with alternative models and a combined density forecast. Findings support the initial hypothesis regarding the significance of the identified factors influencing lending rates across euro area countries. Although the pass-through from market rates to lending rates remains substantial during periods of positive interest rates, risk factors should not be underestimated as potential determinants of lending rates within the euro area. The application of the advanced econometric methods to the analysis and forecasting of lending rates across euro area counties yields more accurate predictions and deeper insight into the prospective evolution of the studied financial indicator.
