BoJ research warns of unintended policy consequences from Libor


A working paper published by the Bank of Japan on December 28 finds there are both positive and negative effects that may follow from the use of a reference rate such as Libor.

The paper's author, Nao Sudo, suggests reference rates may promote economic efficiency by reducing "informational friction" in credit markets and allowing more accurate forecasting. This in turn reduces credit spreads and promotes macroeconomic stability.

However, the reference rate can also be a source of noise in credit

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