LIBOR deception and central bank forward (mis-)guidance: evidence from Norway during 2007–2011

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    Abstract

    This paper is an empirical investigation into the Norwegian Interbank Offered Rate (NIBOR) during 2007–11. It is demonstrated that an informal rule change to the benchmark fixing mechanism, instigated by the NIBOR panel banks, not only increased the susceptibility of the benchmark to deception, but also fundamentally changed the decomposition of the domestic money market risk premium. It resulted in a greater dependency on the Eurozone money markets and the ability of Eurozone banks to raise U.S. dollar funding. As a result, Norway faced both higher, and more volatile, money market risk premia since Q4 2008 – having considerable impact on forward guidance within monetary policy.
    Original languageEnglish
    Pages (from-to)452-472
    Number of pages21
    JournalJournal of International Financial Markets, Institutions and Money
    Volume32
    Early online date21 Jul 2014
    DOIs
    Publication statusPublished - 1 Sept 2014

    Keywords

    • LIBOR
    • Manipulation
    • Collusion
    • Forward guidance
    • Monetary policy

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