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

Auckland University of Technology - Department of Finance

Feng Jiao

University of Lethbridge - Faculty of Management

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

Auckland University of Technology - Department of Finance ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand

Feng Jiao (Contact Author)

University of Lethbridge - Faculty of Management ( email )

4401 University Drive
Lethbridge, Alberta TIK 3M4
Canada

Yiuman Tse

University of Missouri at Saint Louis ( email )

1 University Blvd.
St Louis, MO 63121
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
70
Abstract Views
387
rank
407,636
PlumX Metrics