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Network dependence in the euro area money market

Network dependence in the euro area money market I estimate network dependence effects in the euro area unsecured overnight interbank market during the financial crisis. I use linear spatial regressions to estimate the dependence of individual banks' trading volumes (and interest rates) on the trading volumes (and interest rates) of their network neighbours. Neighbours are defined from past trading relations. I find pre-dominantly negative dependence for net lending and the lending-borrowing interest rate spread, and positive dependence for total trading volume and borrowing rates. These effects are, however, generally small and significant only in periods of market turmoil or ECB interventions. The results suggest that neighbours act as a buffer in absorbing idiosyncratic liquidity shocks. Keywords: euro area money markets; financial crisis; network analysis; spatial regressions. Reference to this paper should be made as follows: Rünstler, G. (2016) `Network dependence in the euro area money market', Int. J. Computational Economics and Econometrics, Vol. 6, No. 3, pp.294­314. Biographical notes: Gerhard Rünstler is employed as a Principal Economist at the Monetary Policy Research Division of the European Central Bank. His works focuses on empirical methods in macro-economics and finance. In recent years, he has published in the fields of mixed-frequency dynamic factor models, multivariate unobserved components models, http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Computational Economics and Econometrics Inderscience Publishers

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Publisher
Inderscience Publishers
Copyright
Copyright © 2016 Inderscience Enterprises Ltd.
ISSN
1757-1170
eISSN
1757-1189
DOI
10.1504/IJCEE.2016.077262
Publisher site
See Article on Publisher Site

Abstract

I estimate network dependence effects in the euro area unsecured overnight interbank market during the financial crisis. I use linear spatial regressions to estimate the dependence of individual banks' trading volumes (and interest rates) on the trading volumes (and interest rates) of their network neighbours. Neighbours are defined from past trading relations. I find pre-dominantly negative dependence for net lending and the lending-borrowing interest rate spread, and positive dependence for total trading volume and borrowing rates. These effects are, however, generally small and significant only in periods of market turmoil or ECB interventions. The results suggest that neighbours act as a buffer in absorbing idiosyncratic liquidity shocks. Keywords: euro area money markets; financial crisis; network analysis; spatial regressions. Reference to this paper should be made as follows: Rünstler, G. (2016) `Network dependence in the euro area money market', Int. J. Computational Economics and Econometrics, Vol. 6, No. 3, pp.294­314. Biographical notes: Gerhard Rünstler is employed as a Principal Economist at the Monetary Policy Research Division of the European Central Bank. His works focuses on empirical methods in macro-economics and finance. In recent years, he has published in the fields of mixed-frequency dynamic factor models, multivariate unobserved components models,

Journal

International Journal of Computational Economics and EconometricsInderscience Publishers

Published: Jan 1, 2016

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