Modelling the Rate of Treasury Bills in Ghana

Abstract

Treasury bills rate is a preeminent default-risk free rate asset in Ghana’s money market whose existence can affect the purchasing power of other assets in the security market. Bank of Ghana sells its Bills to mop up excess liquidity and buys Bank of Ghana Bills to inject liquidity into the system. This paper empirically models the monthly Treasury bill rate of two short term Treasury bills (91 day and 182 day) from the year 1998 to 2012 from the BoG using ARIMA models. From the results, it was realized that ARIMA  model is appropriate for modelling the 91-day Treasury bill rate with a log likelihood value of -328.58, and least AIC value of 667.17, AICc value of 667.52 and BIC value of 683.05. Also, ARIMA  best models the 182-day Treasury bill rates with a log likelihood value of -356.50, and AIC value of 717.00, AICc value of 717.06 and least BIC value of 723.35. An ARCH-LM test and Ljung-Box test on the residuals of the models revealed that the residuals are free from heteroscedasticity and serial correlation respectively.

Keywords: Treasury bills, Ghana, Asset, Empirical, Short term.