Euro money market spreads during the 2007-? financial crisis

Nuno Cassola and Claudio Morana

No 1437, Working Paper Series from European Central Bank

Abstract: In the paper we investigate the empirical features of euro area money market turbulence during the recent financial crisis. By means of a novel Fractionally Integrated Heteroskedastic Factor Vector Autoregressive model, we find evidence of a deterministic level factor in the EURIBOR-OIS (OIS) spreads term structure, associated with the two waves of stress in the interbank market, following the BNP Paribas (9 August 2007) and the Lehman Brothers (16 September 2008) "shocks", and two additional factors, of the long memory type, bearing the interpretation of curvature and slope factors. The unfolding of the crisis yielded a significant increase in the persistence and volatility of OIS spreads. We also find evidence of a declining trend in the level and volatility of OIS spreads since December 2008, associated with ECB interest rate cuts and full allotment policy. JEL Classification: C32, E43, E58, G15

Keywords: credit/liquidity risk; fractionally integrated heteroskedastic factor vector autoregressive model; money market interest rates (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fmk and nep-mon
Note: 334845
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Journal Article: Euro money market spreads during the 2007–? financial crisis (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20121437

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