The SOFR and the Fed’s influence over market interest rates
Date
2021
Authors
Indriawan, I.
Jiao, F.
Tse, Y.
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Journal article
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Economics Letters, 2021; 209:110095-1-110095-6
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Ivan Indriawan, Feng Jiao, Yiuman Tse
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Abstract
The secured overnight financing rate (SOFR) is the successor to LIBOR (London interbank offered rate) as a benchmark rate for lending in US dollars. Our results show that the SOFR aligns with the Federal Reserve’s policy target more closely than LIBOR. In addition, short-term market rates are more responsive to the SOFR than to LIBOR. Our findings highlight the advantages of the new benchmark rate over its predecessor.
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© 2021 Elsevier B.V. All rights reserved.