Interbank liquidity risk transmission to large emerging markets in crisis periods

Imtiaz Sifat, Alireza Zarei, Seyedmehdi Hosseini and Elie Bouri

International Review of Financial Analysis, 2022, vol. 82, issue C

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 US monetary policy and market conditions. 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 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521922001612
Full text for ScienceDirect subscribers only

Related works:
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:eee:finana:v:82:y:2022:i:c:s1057521922001612

DOI: 10.1016/j.irfa.2022.102200

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().