New Staff Memo: SWESTR’s design is robust

News, Staff memo Compared to the current design of SWESTR, a number of alternative designs have a very small impact on the average level and volatility of the reference rate. This is indicated by the analysis in a new Staff Memo by David Petersson and Ingrid Wallin Johansson, who work at the Markets Department.

SWESTR (Swedish krona Short Term Rate) is a reference rate determined and published by the Riksbank. It is calculated based on transactions in Swedish kronor made on the money market at the shortest maturity, that is, overnight.

Based on the complete transaction dataset for 2022, the authors have analysed how the properties of the reference rate are affected by a number of different choices made by the Riksbank when SWESTR was designed. The analysed questions concern both the transactions included in the dataset and how the reference rate is subsequently calculated. Petersson and Wallin Johansson show that SWESTR’s average level and volatility are affected to a very small extent by the various choices. In other words, the reference rate is robust to changes at a detailed level in the design.

The authors also show that the concentration risks in the transaction dataset for SWESTR are limited. There is thus a good dispersion in the transaction dataset for SWESTR both among the reporters and their counterparties.

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Updated 23/05/2023