A Mechanism for LIBOR

36 Pages Posted: 27 Apr 2013 Last revised: 30 Jul 2017

See all articles by Brian Coulter

Brian Coulter

Richard Ivey School of Business

Joel D. Shapiro

University of Oxford - Said Business School

Peter Zimmerman

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: January 13, 2017

Abstract

The investigations into LIBOR have highlighted that it is subject to manipulation. We examine a new method for constructing LIBOR that produces an unbiased estimator of the true rate. LIBOR itself is based solely on transactions. We allow for fines when a bank’s transaction is different than a comparison rate, which depends on the set of transactions and non-manipulated rates elicited by a revealed preference mechanism. These non-manipulated rates will always be used in the fines, but transactions may not. We address how this approach applies to other financial benchmarks and how it works even in markets in which there are few transactions.

Keywords: LIBOR, benchmark

JEL Classification: D82, G21, G28

Suggested Citation

Coulter, Brian and Shapiro, Joel D. and Zimmerman, Peter, A Mechanism for LIBOR (January 13, 2017). Available at SSRN: https://ssrn.com/abstract=2256952 or http://dx.doi.org/10.2139/ssrn.2256952

Brian Coulter

Richard Ivey School of Business ( email )

London, Ontario N6A 5B8
Canada

Joel D. Shapiro (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Peter Zimmerman

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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