Interbank market under the currency board: Case of Lithuania
This paper studies the liquidity effect in the environment of a currency board. Under such an environment, the endogeneity issue common to other monetary regimes does not arise, thereby allowing for a straightforward analysis. Using daily data from the interbank market in Lithuania, we estimate the liquidity effect and show that, contrarily to the existent literature, overnight interest rates tend to fall at the end of reserve holding period while being higher at the beginning. Thus the martingale hypothesis of the interest rates is rejected. It is also shown that banks do not utilize aggregate liquidity information provided by the Central Bank of Lithuania due to the structural impediments of the market
References listed on IDEAS
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- Gaspar, Vítor & Pérez-Quirós, Gabriel & Rodriguez Mendizabal, Hugo, 2004. "Interest Rate Determination in the Interbank Market," CEPR Discussion Papers 4516, C.E.P.R. Discussion Papers.
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- Vitor Gaspar & Gabriel Pérez Quir? & Hugo Rodr?uez Mendiz?al, 2004. "Interest Rate Determination in the Interbank Market," UFAE and IAE Working Papers 603.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, "undated". "Liquidity, Information, and the Overnight Rate," IEW - Working Papers 186, Institute for Empirical Research in Economics - University of Zurich.
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