Interbank market under the currency board: Case of Lithuania
No 448, Computing in Economics and Finance 2005 from Society for Computational Economics
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
Keywords: interbank market; liquidity effect; currency board; Lithuania (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-mac, nep-mon and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:448
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