Staff Reports

The Effect of the Term Auction Facility on the LondonInter-Bank Offered Rate

July 2008Number 335
JEL classification: G10, G12, G18, G19

Authors: James McAndrews, Asani Sarkar, and Zhenyu Wang

This paper examines the effects of the Federal Reserve’s Term Auction Facility (TAF) on the London Inter-Bank Offered Rate (LIBOR). The particular question investigated is whether the announcements and operations of the TAF are associated with downward shifts of the LIBOR; such an association would provide one indication of the efficacy of the TAF in mitigating liquidity problems in the interbank funding market. The empirical results suggest that the TAF has helped to ease strains in this market.

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