Short-Term Liquidity Contagion in the Interbank Market

Carlos León, Constanza Martínez and Freddy Cepeda-Lopez

No 14167, Borradores de Economia from Banco de la Republica

Abstract: We implement a modified version of DebtRank, a measure of systemic impact inspired in feedback centrality, to recursively measure the contagion effects caused by the default of a selected financial institution. In our case contagion is a liquidity issue, measured as the decrease in financial institutions’ short-term liquidity position across the Colombian interbank network. Concurrent with related literature, unless contagion dynamics are preceded by a major –but unlikely- drop in the short-term liquidity position of all participants, we consistently find that individual and systemic contagion effects are negligible. We find that negative effects resulting from contagion are concentrated in a few financial institutions. However, as most of their impact is conditional on the occurrence of unlikely major widespread illiquidity events, and due to the subsidiary contribution of the interbank market to the local money market, their overall systemic importance is still to be confirmed.

Keywords: Financial networks; contagion; default; liquidity; DebtRank. (search for similar items in EconPapers)
Pages: 31
Date: 2015-12-24
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_920.pdf

Related works:
Journal Article: Short-Term Liquidity Contagion in the Interbank Market (2019)
Working Paper: Short-Term Liquidity Contagion in the Interbank Market (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:col:000094:014167

Access Statistics for this paper

More papers in Borradores de Economia from Banco de la Republica
Bibliographic data for series maintained by Clorith Angelica Bahos Olivera ().