Pricing in the Norwegian Interbank Market – The Effects of Liquidity and Implicit Government Support

40 Pages Posted: 9 Mar 2017

See all articles by Q. Farooq Akram

Q. Farooq Akram

Norges Bank - Research Department

Casper Christophersen

Norges Bank - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: April 2017

Abstract

We investigate the effects of central bank liquidity and possible implicit government guarantees against default on Norwegian overnight interbank interest rates. We conduct an econometric study of these interest rates over the period 2006–09, which includes the sharp fall in interbank trading during the financial crisis. Our findings suggest relatively lower funding costs for banks of systemic importance, particularly for banks with many and valuable linkages to other banks. Moreover, interest rates are found to depend not only on overall liquidity in the interbank market, but on its distribution among banks as well. There is also evidence of stronger effects on interest rates of systemic importance, creditworthiness and liquidity demand and supply factors during the financial crisis.

Suggested Citation

Akram, Q. Farooq and Christophersen, Casper, Pricing in the Norwegian Interbank Market – The Effects of Liquidity and Implicit Government Support (April 2017). Oxford Bulletin of Economics and Statistics, Vol. 79, Issue 2, pp. 165-204, 2017. Available at SSRN: https://ssrn.com/abstract=2929392 or http://dx.doi.org/10.1111/obes.12147

Q. Farooq Akram (Contact Author)

Norges Bank - Research Department ( email )

PO Box 1179 Sentrum
N-0107 Oslo
Norway

Casper Christophersen

Norges Bank - Research Department ( email )

P.O. Box 1179
Oslo, N-0107
Norway

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