Asymmetric Mean Reversion and Dynamic Equilibrium of Global Interbank Rates: A Reassessment in the Era of Unconventional Monetary Policy

Abstract

Abstract: The quadratic mean reversion model (SWING process) is applied to monthly interbank rate data from March 2014 to December 2024. The model parameters, which define the asymmetric adjustment speeds and the bounds of the equilibrium interval, are estimated using the Generalized Method of Moments (GMM). Particular attention is given to structural breaks, notably the transition from LIBOR to SOFR in the United States and the episode of negative interest rates in the Euro area. The findings confirm the persistence of statistically significant asymmetric adjustment speeds across all the studied markets. Nonetheless, the post-2013 period has fundamentally altered the nature of dynamic equilibrium intervals. There is documented compression of the equilibrium interval into negative territory in the Euro area, substantial widening in Turkey reflecting increased volatility, and a structural shift in U.S. market dynamics following the cessation of LIBOR in mid-2023. The Moroccan market demonstrates relative stability but at historically low equilibrium levels. The results show that the structural characteristics of interbank markets, profoundly shaped by a decade of central bank interventions, constitute a primary determinant of asymmetric rate adjustments. These findings bear critical implications for the transmission of monetary policy and risk management.