Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank market

Andrea Eross, Andrew Urquhart, Simon Wolfe

Research output: Contribution to journal › Article

Abstract

This paper investigates liquidity spillovers between the US and European interbank market during turbulent and tranquil periods. We show that an endogenous model with time-varying transition probabilities is effective in describing the propagation of liquidity shocks within the interbank market, while predicting liquidity crashes characterised by changed dynamics. We show that liquidity shocks, originating from movements of the spread between the Asset Backed Commercial Paper and T-bill, drive regime changes in the euro fixed-float OIS swap rate. Our results support the idea of endogenous contagion from the US money market to the eurozone money market during the global financial crisis.
LanguageEnglish
JournalEuropean Journal of Finance
StateAccepted/In press - 29 Mar 2016

Fingerprint

Liquidity
Contagion
Global financial crisis

Cite this

Eross, Andrea ; Urquhart, Andrew ; Wolfe, Simon. / Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank market. In: European Journal of Finance. 2016
@article{91283ab4752d49599521114b2a6383a3,
title = "Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank market",
abstract = "This paper investigates liquidity spillovers between the US and European interbank market during turbulent and tranquil periods. We show that an endogenous model with time-varying transition probabilities is effective in describing the propagation of liquidity shocks within the interbank market, while predicting liquidity crashes characterised by changed dynamics. We show that liquidity shocks, originating from movements of the spread between the Asset Backed Commercial Paper and T-bill, drive regime changes in the euro fixed-float OIS swap rate. Our results support the idea of endogenous contagion from the US money market to the eurozone money market during the global financial crisis.",
author = "Andrea Eross and Andrew Urquhart and Simon Wolfe",
year = "2016",
month = "3",
day = "29",
language = "English",
journal = "European Journal of Finance",
issn = "1351-847X",
publisher = "Routledge",

}

Eross, A, Urquhart, A & Wolfe, S 2016, 'Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank market' European Journal of Finance.

Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank market. / Eross, Andrea; Urquhart, Andrew; Wolfe, Simon.

In: European Journal of Finance, 29.03.2016.

Research output: Contribution to journal › Article

TY - JOUR

T1 - Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank market

AU - Eross,Andrea

AU - Urquhart,Andrew

AU - Wolfe,Simon

PY - 2016/3/29

Y1 - 2016/3/29

N2 - This paper investigates liquidity spillovers between the US and European interbank market during turbulent and tranquil periods. We show that an endogenous model with time-varying transition probabilities is effective in describing the propagation of liquidity shocks within the interbank market, while predicting liquidity crashes characterised by changed dynamics. We show that liquidity shocks, originating from movements of the spread between the Asset Backed Commercial Paper and T-bill, drive regime changes in the euro fixed-float OIS swap rate. Our results support the idea of endogenous contagion from the US money market to the eurozone money market during the global financial crisis.

AB - This paper investigates liquidity spillovers between the US and European interbank market during turbulent and tranquil periods. We show that an endogenous model with time-varying transition probabilities is effective in describing the propagation of liquidity shocks within the interbank market, while predicting liquidity crashes characterised by changed dynamics. We show that liquidity shocks, originating from movements of the spread between the Asset Backed Commercial Paper and T-bill, drive regime changes in the euro fixed-float OIS swap rate. Our results support the idea of endogenous contagion from the US money market to the eurozone money market during the global financial crisis.

M3 - Article

JO - European Journal of Finance

T2 - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

ER -

Eross A, Urquhart A, Wolfe S. Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank market. European Journal of Finance. 2016 Mar 29.