Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210117
Authors: 
Akram, Q. Farooq
Findreng, Jon H.
Year of Publication: 
2017
Series/Report no.: 
Working Paper No. 7/2017
Abstract: 
We investigate pricing and activity in the Norwegian unsecured overnight interbank market in response to a shift in the central bank's liquidity policy. In October 2011, to encourage interbank trading, banks were allotted quotas for their overnight deposits with remuneration at the key policy rate while that on overnight deposits beyond allotted quotas was set one percentage point lower. In addition, a target range for banks' total overnight deposits was introduced and supported by open market operations to counteract not only temporary liquidity shortfalls, but also surpluses. We document substantially higher interbank trading, lower interbank interest rates relative to the policy rate as well as lower interest rate volatility following the policy shift. Notably, while overnight interbank interest rates were generally above the key policy rate before the policy shift, they have been close to but generally below the key policy rate afterwards.
Subjects: 
overnight interbank market
liquidity policy
regime-switching models
JEL: 
G21
E43
E58
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-973-9
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/4.0/deed.no
Document Type: 
Working Paper
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