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Completed papers:
In progress:
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Institutional Structure of the Interbank Market Under a Currency
Board
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Commercial Bank Reserve Management in the Case of a Currency
Board
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Bank
Regulation in Practice and in Theory
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Internal Ratings-Based Approach
for Credit Risk in Transition Economies
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Human Capital and Educational
Corruption
(with Philip Shaw)
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Interbank Market Under the Currency Board: Case of Lithuania
Abstract
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,
contrary to the existing literature, overnight interest rates tend
to fall at the end of the reserve holding period while being higher
at the beginning. Thus, the martingale hypothesis of the interest
rates is rejected indicating inefficiency in the interbank market.
It is also shown that banks do not utilize aggregate liquidity
information provided by the Bank of Lithuania due to the structural
impediments of the market. Contrary to the findings in the
literature we do not find significant impact of the treasury account
holdings to the interbank market interest rates. |
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