The overnight interbank market: Evidence from the G-7 and the Euro zone
We study the interbank markets for overnight loans of the major industrial countries, linking the behaviour of short-term interest rates to the operating procedures of these countries’ central banks. We find that many of the key behavioural features of US federal funds rates, on which previous studies have focused, are not robust to changes in institutional details, along both cross-sectional and time-series dimensions of the data. Our results indicate that central banks’ operating procedures and intervention styles play a crucial role in shaping empirical features of short-term interest rates’ day-to-day behaviour in industrial countries.
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