Abstract
This paper investigates liquidity spillovers between the US and European interbank markets 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.
Original language | English |
---|---|
Pages (from-to) | 35-53 |
Journal | European Journal of Finance |
Volume | 25 |
Issue number | 1 |
Early online date | 23 Apr 2018 |
DOIs | |
Publication status | Published - 2019 |
Fingerprint Dive into the research topics of 'Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank markets'. Together they form a unique fingerprint.
Profiles
-
Andrea Eross
- School of Social Sciences, Edinburgh Business School - Assistant Professor
- School of Social Sciences - Assistant Professor
- Research Centres and Themes, Centre for Finance & Investment - Assistant Professor
- Research Centres and Themes, The Spatial Economics and Econometrics Centre - Assistant Professor
Person: Academic (Research & Teaching)