The LIBOR mechanism and related games
The London InterBank Offered Rate (LIBOR) is the most important set of interest rate benchmarks. Recently there have been reports about systematic manipulation of the LIBOR. We thus investigate incentives and possibilities to rig the LIBOR or related statistics for quote submitting panel banks. Both reputation concerns and financial exposure to the index may lead to misrepresentation of borrowing costs. Even in the static model we consider, we show that incorrect quoting is the standard and honesty the exception. In particular, we can theoretically explain why the LIBOR quotes were too low during the financial crisis which started in 2007, when increasing panel bank sizes is helpful and why individual quotes should be published with delay. Moreover, we evaluate and compare the performance of different aggregators like the median, the trimmed average and the average.
|Date of creation:||May 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.imw.uni-bielefeld.de/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Buiter, Willem H., 2008.
"Central banks and financial crises,"
Proceedings - Economic Policy Symposium - Jackson Hole,
Federal Reserve Bank of Kansas City, pages 495-633.
- Abrantes-Metz, Rosa & Villas-Boas, Sofia B. & Judge, George G., 2010.
"Tracking the Libor rate,"
CUDARE Working Paper Series
1108R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy, revised Jul 2010.
- Abrantes-Metz, Rosa & Villas-Boas, Sofia B. & Judge, George G., 2013. "Tracking the Libor Rate," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2p33x7dk, Department of Agricultural & Resource Economics, UC Berkeley.
- Abrantes-Metz, Rosa M. & Kraten, Michael & Metz, Albert D. & Seow, Gim S., 2012. "Libor manipulation?," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 136-150.
- Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
When requesting a correction, please mention this item's handle: RePEc:bie:wpaper:482. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Frederik Herzberg)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.