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The London Interbank Offered Rate (LIBOR) and UK construction industry output 1990‐2008

The London Interbank Offered Rate (LIBOR) and UK construction industry output 1990‐2008 Purpose – The aim of this research is to answer whether or not wholesale interest rates, such as the London Interbank Offered Rate (LIBOR), can be used as an effective policy instrument to influence construction output. Developers and contractors borrow to finance construction and are charged retail interest rates, determined by the lending bank. The study investigated the relationship between LIBOR and construction industry output. Design/methodology/approach – The study identified two time series, LIBOR and annual construction output and a number of regressions were run using the first differences to observe whether a change in LIBOR alone had a significant influence on construction output lagged by one to four years. Findings – No significant relationship was found between changes in LIBOR and the annual change in construction output, regardless of the number of years lagged. Social implications – The policy implication of this research shows that control of demand for construction by government using wholesale interest rates is unlikely to succeed. Banks' lending to developers depends on other factors, such as retail interest rates, risk management and expectations. Originality/value – The value of this research is that it supports the view that government policy needs to focus on stimulating construction demand, using real projects rather than monetary policies, such as interest rate manipulation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Management of Property and Construction Emerald Publishing

The London Interbank Offered Rate (LIBOR) and UK construction industry output 1990‐2008

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References (33)

Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
1366-4387
DOI
10.1108/JFMPC-03-2012-0004
Publisher site
See Article on Publisher Site

Abstract

Purpose – The aim of this research is to answer whether or not wholesale interest rates, such as the London Interbank Offered Rate (LIBOR), can be used as an effective policy instrument to influence construction output. Developers and contractors borrow to finance construction and are charged retail interest rates, determined by the lending bank. The study investigated the relationship between LIBOR and construction industry output. Design/methodology/approach – The study identified two time series, LIBOR and annual construction output and a number of regressions were run using the first differences to observe whether a change in LIBOR alone had a significant influence on construction output lagged by one to four years. Findings – No significant relationship was found between changes in LIBOR and the annual change in construction output, regardless of the number of years lagged. Social implications – The policy implication of this research shows that control of demand for construction by government using wholesale interest rates is unlikely to succeed. Banks' lending to developers depends on other factors, such as retail interest rates, risk management and expectations. Originality/value – The value of this research is that it supports the view that government policy needs to focus on stimulating construction demand, using real projects rather than monetary policies, such as interest rate manipulation.

Journal

Journal of Financial Management of Property and Construction – Emerald Publishing

Published: Nov 1, 2013

Keywords: Construction business cycle; Construction output; Interest rates; LIBOR

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