Welcome WIRON, goodbye WIBOR O/N? Is the latter still needed?
Welcome WIRON, goodbye WIBOR O/N? Is the latter still needed?

Summary/Abstract: Knowing the future prices of short-term money is crucial for the financial industry, businesses and households. The aim of the study is to assess whether the WIRON (Warsaw Interest Rate Overnight), a recently introduced indicator of the one-day price of money in Poland, can be predicted on the basis of the WIBOR O/N (Warsaw Interbank Overnight Rate), its mid-afternoon proxy, and, if so, to determine the accuracy of the prediction. The study used data from the GPW Benchmark and the National Bank of Poland, covering the period between 2nd January 2019 and 12th July 2024. The analysis was nested within the Autoregressive Distributed Lag (ARDL) approach to the cointegration framework. After the appropriate ARDL model based on the Akaike Information Criterion (AIC) was chosen and the corresponding restricted error correction model (ECM) was estimated using daily and monthly sampled data, up to 31st January 2024, 100 simulations were performed. As a result, a series of one-day and one-month-ahead dynamic WIRON forecasts up to 12th July 2024 were obtained along with their 95% confidence bands. The analysis shows that the restricted ECM performs well in and out of the sample. On average, it slightly underestimates the WIRON rate, producing forecasts that are more accurate than naïve ones based on a random walk.

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