The SOFR and the Fed's Influence Over Market Interest Rates

16 Pages Posted: 25 Jun 2021 Last revised: 27 Sep 2021

See all articles by Ivan Indriawan

Ivan Indriawan

University of Adelaide

Feng Jiao

University of Lethbridge - Dhillon School of Business

Yiuman Tse

University of Missouri at Saint Louis

Date Written: September 26, 2021

Abstract

The secured overnight financing rate (SOFR) is the successor to LIBOR (London interbank offered rate) as a benchmark rate for lending in US dollars. Our results show that the SOFR aligns with the Federal Reserve's policy target more closely than LIBOR. In addition, short-term market rates are more responsive to the SOFR than to LIBOR. Our findings highlight the advantages of the new benchmark rate over its predecessor.

Keywords: SOFR, LIBOR, target fed funds rate

JEL Classification: E43, E58, G12

Suggested Citation

Indriawan, Ivan and Jiao, Feng and Tse, Yiuman, The SOFR and the Fed's Influence Over Market Interest Rates (September 26, 2021). Economics Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3867692 or http://dx.doi.org/10.2139/ssrn.3867692

Ivan Indriawan

University of Adelaide ( email )

No 233 North Terrace, School of Commerce
Adelaide, South Australia 5005
Australia

HOME PAGE: http://https://sites.google.com/site/ivanindriawan/home

Feng Jiao (Contact Author)

University of Lethbridge - Dhillon School of Business ( email )

4401 University Drive
Lethridge, Alberta T1K 3M4
Canada

Yiuman Tse

University of Missouri at Saint Louis ( email )

1 University Blvd.
St Louis, MO 63121
United States

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