Interbank liquidity risk transmission to large emerging markets in crisis periods

Imtiaz Sifat; Alireza Zarei; Seyedmehdi Hosseini; Elie Bouri

doi:10.1016/j.irfa.2022.102200

Interbank liquidity risk transmission to large emerging markets in crisis periods

Imtiaz Sifat, Alireza Zarei, Seyedmehdi Hosseini, Elie Bouri

Research Centre for Financial & Corporate Integrity

Research output: Contribution to journal › Article › peer-review

9 Citations (Scopus)

40 Downloads (Pure)

Abstract

In this paper, we conduct two investigations regarding funding liquidity risk in large emerging economies: Brazil, Russia, India, China, and South Africa — BRICS. In the first, we track the relevance of monetary policy decisions originating in developed economies for interbank funding liquidity risk in BRICS economies during crisis periods by applying a time-varying parameter model in a Bayesian framework. The results indicate weak associations between interbank credit market and monetary policy and market conditions in the US. In contrast, the Federal Reserve's National Financial Conditions Index (NFCI) — a representative of the health of both real and financial sectors in the US — matters more. The temporal patterns of the results imply that key central banking decisions precede or coincide with low degrees of associations. In the second, we examine whether interbank credit crunch exerts an influence on market liquidity risk in BRICS economies using a Granger causality approach. The results reveal that interbank credit crunch depresses market liquidity in the corresponding domestic market and that the state of fear and credit market conditions in the US exert some influence in this regard. Overall, our findings hint at judicious market intervention and liquidity management by BRICS central banks.

Original language	English
Article number	102200
Number of pages	22
Journal	International Review of Financial Analysis
Volume	82
Early online date	10 May 2022
DOIs	https://doi.org/10.1016/j.irfa.2022.102200
Publication status	Published - Jul 2022

Bibliographical note

© 2022, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

This document is the author’s post-print version, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it

Keywords

Credit risk
Liquidity risk
Bond market
Stock market
BRICS
TED
US VIX

Access to Document

10.1016/j.irfa.2022.102200

Post-PrintAccepted author manuscript, 2.76 MBLicence: CC BY-NC-ND

Cite this

@article{d3c477b606054f76b8bfe904b9a14635,

title = "Interbank liquidity risk transmission to large emerging markets in crisis periods",

abstract = "In this paper, we conduct two investigations regarding funding liquidity risk in large emerging economies: Brazil, Russia, India, China, and South Africa — BRICS. In the first, we track the relevance of monetary policy decisions originating in developed economies for interbank funding liquidity risk in BRICS economies during crisis periods by applying a time-varying parameter model in a Bayesian framework. The results indicate weak associations between interbank credit market and monetary policy and market conditions in the US. In contrast, the Federal Reserve's National Financial Conditions Index (NFCI) — a representative of the health of both real and financial sectors in the US — matters more. The temporal patterns of the results imply that key central banking decisions precede or coincide with low degrees of associations. In the second, we examine whether interbank credit crunch exerts an influence on market liquidity risk in BRICS economies using a Granger causality approach. The results reveal that interbank credit crunch depresses market liquidity in the corresponding domestic market and that the state of fear and credit market conditions in the US exert some influence in this regard. Overall, our findings hint at judicious market intervention and liquidity management by BRICS central banks.",

keywords = "Credit risk, Liquidity risk, Bond market, Stock market, BRICS, TED, US VIX",

author = "Imtiaz Sifat and Alireza Zarei and Seyedmehdi Hosseini and Elie Bouri",

note = "{\textcopyright} 2022, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/ Copyright {\textcopyright} and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders. This document is the author{\textquoteright}s post-print version, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it ",

year = "2022",

month = jul,

doi = "10.1016/j.irfa.2022.102200",

language = "English",

volume = "82",

journal = "International Review of Financial Analysis",

issn = "1057-5219",

publisher = "Elsevier",

}

TY - JOUR

T1 - Interbank liquidity risk transmission to large emerging markets in crisis periods

AU - Sifat, Imtiaz

AU - Zarei, Alireza

AU - Hosseini, Seyedmehdi

AU - Bouri, Elie

N1 - © 2022, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/ Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders. This document is the author’s post-print version, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it

PY - 2022/7

Y1 - 2022/7

N2 - In this paper, we conduct two investigations regarding funding liquidity risk in large emerging economies: Brazil, Russia, India, China, and South Africa — BRICS. In the first, we track the relevance of monetary policy decisions originating in developed economies for interbank funding liquidity risk in BRICS economies during crisis periods by applying a time-varying parameter model in a Bayesian framework. The results indicate weak associations between interbank credit market and monetary policy and market conditions in the US. In contrast, the Federal Reserve's National Financial Conditions Index (NFCI) — a representative of the health of both real and financial sectors in the US — matters more. The temporal patterns of the results imply that key central banking decisions precede or coincide with low degrees of associations. In the second, we examine whether interbank credit crunch exerts an influence on market liquidity risk in BRICS economies using a Granger causality approach. The results reveal that interbank credit crunch depresses market liquidity in the corresponding domestic market and that the state of fear and credit market conditions in the US exert some influence in this regard. Overall, our findings hint at judicious market intervention and liquidity management by BRICS central banks.

AB - In this paper, we conduct two investigations regarding funding liquidity risk in large emerging economies: Brazil, Russia, India, China, and South Africa — BRICS. In the first, we track the relevance of monetary policy decisions originating in developed economies for interbank funding liquidity risk in BRICS economies during crisis periods by applying a time-varying parameter model in a Bayesian framework. The results indicate weak associations between interbank credit market and monetary policy and market conditions in the US. In contrast, the Federal Reserve's National Financial Conditions Index (NFCI) — a representative of the health of both real and financial sectors in the US — matters more. The temporal patterns of the results imply that key central banking decisions precede or coincide with low degrees of associations. In the second, we examine whether interbank credit crunch exerts an influence on market liquidity risk in BRICS economies using a Granger causality approach. The results reveal that interbank credit crunch depresses market liquidity in the corresponding domestic market and that the state of fear and credit market conditions in the US exert some influence in this regard. Overall, our findings hint at judicious market intervention and liquidity management by BRICS central banks.

KW - Credit risk

KW - Liquidity risk

KW - Bond market

KW - Stock market

KW - BRICS

KW - TED

KW - US VIX

UR - http://www.scopus.com/inward/record.url?scp=85133919157&partnerID=8YFLogxK

U2 - 10.1016/j.irfa.2022.102200

DO - 10.1016/j.irfa.2022.102200

M3 - Article

SN - 1057-5219

VL - 82

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

M1 - 102200

ER -

Interbank liquidity risk transmission to large emerging markets in crisis periods

Abstract

Bibliographical note

Keywords

Access to Document

Other files and links

Fingerprint

Cite this