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What is a prime bank? A Euribor – OIS spread perspective

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  • Marco Taboga

    ()
    (Bank of Italy)

Abstract

Since the outbreak of the financial crisis in 2007, the level and volatility of Euribor – OIS differentials have increased significantly. According to the extant literature, this variability is mainly explained by credit and liquidity risk premia. I provide evidence that part of the variability might also be explained by ambiguity in the phrasing of the Euribor survey. Participants in the survey are asked at what rate they believe interbank funds to be exchanged between prime banks; given the lack of a clear definition of the concept of prime bank, this question might leave room for subjective judgment. In particular, I find evidence that some variability of Euribor rates might be explained by changes in the survey participants' perception of what a prime bank is. This adds to the difficulties already encountered by previous studies in exactly identifying and measuring the determinants of Euribor rates. I argue that these difficulties are at odds with the clarity, simplicity and replicability that should be required of a widely utilized financial benchmark.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 895.

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Date of creation: Jan 2013
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Handle: RePEc:bdi:wptemi:td_895_13

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Keywords: Euribor rates; Euribor survey; Euribor –; OIS spread.;

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Cited by:
  1. Adam Gersl & Jitka Lesanovska, 2013. "Explaining the Czech Interbank Market Risk Premium," Working Papers 2013/01, Czech National Bank, Research Department.
  2. Antonio Accetturo & Matteo Bugamelli & Andrea Lamorgese, 2013. "Skill upgrading and exports," Temi di discussione (Economic working papers) 919, Bank of Italy, Economic Research and International Relations Area.

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