Interbank rate uncertainty raises cost of credit – ECB paper

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Uncertainty in interbank markets can significantly raise the cost of loans for firms, research published by the European Central Bank finds.

Carlo Altavilla, Giacomo Carboni, Michele Lenza, Harald Uhlig note it is important to understand how disruptions to interbank markets feed through to the economy, both for gauging monetary policy transmission and designing bank regulation.

They develop a “novel measure” of interbank rate uncertainty, given by the cross-sectional dispersion in interest

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