Interbank Market under the Currency Board: case of Lithuania

Marius Jurgilas ()
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Marius Jurgilas: University of Connecticut, Storrs, USA

Chapter 14 in FindEcon Monograph Series: Advances in Financial Market Analysis, 2006, vol. 1, pp 203-218 from University of Lodz

Abstract: Chapter 14 is devoted to interest rate modeling and studies the liquidity effect under a currency board in Lithuania. It is found that overnight interest rates tend to be higher at the beginning and lower at the end of the reserve holding period. The findings contrast the empirical findings in the literature. Banks tend to accumulate required reserves early in the period being reluctant to minimize excess reserves at the end of reserve holding period. This result can mainly be attributed to a currency board arrangement and only partially to the developing nature of the Lithuanian interbank market. It is argued that falling variability of the overnight interest rates is not a good signal for increased financial stability.

Keywords: Interest rate; Currency board; Interbank market (search for similar items in EconPapers)
JEL-codes: C01 E02 F00 G00 (search for similar items in EconPapers)
Date: 2006
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