Journal of Finance and Economics

Journal of Finance and Economics

ISSN: 2291-4951 (Print)    ISSN: 2291-496X (Online)

Volume 5 (2017), No. 1, Pages 1-8

DOI: 10.12735/jfe.v5n1p01

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Monetary Transmission: The Federal Funds Rate and the London Interbank Offered Rate (LIBOR)

Joseph Friedman1  Yochanan Shachmurove2 

1Department of Economics, Temple University, Philadelphia, PA, USA
2Department of Economics and Business, the City College and The Graduate School of the City University of New York, New York, N.Y., USA

URL: http://dx.doi.org/10.12735/jfe.v5n1p01

To Cite this Article     Article Views: 282     Downloads: 184  Since deposited on 2017-04-24

Abstract

This paper examines the effectiveness of a monetary transmission mechanism from the federal funds rate to the London Interbank Offered Rate (LIBOR). In particular, the paper employs a co-integration and vector error correction models to examine the degree and the direction of pass-through from the federal funds rate to the LIBOR. Two sub-periods are selected, 1987:02-1994:01 and 1994:02-2002:05, in order to examine this relationship. Results indicate a significant co-integration relationship between the federal funds rate and the LIBOR for the first and second periods. However, in the second period, the two variables adjust differently to a deviation from equilibrium.

JEL Classifications: E00, E3, E4, E5, E6, F3, F4, G1, G2, N1, N2

Keywords: Federal Funds Rate; London Interbank Offered Rate (LIBOR); Interest Rate Pass-Through; Monetary Policy Transmission; Vector Error Correction (VEC) Model; Co-integration Vector Analysis

To Cite this Article: Friedman, J., & Shachmurove, Y. (2017). Monetary transmission: The Federal Funds Rate and the London Interbank Offered Rate (LIBOR). Journal of Finance and Economics, 5(1), 1-8. http://dx.doi.org/10.12735/jfe.v5n1p01

Copyright © J. Friedman & Y. Shachmurove

Creative Commons License
This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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Monetary Transmission: The Federal Funds Rate and the London Interbank Offered Rate (LIBOR)
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