The network nature of over-the-counter interest rates

Edoardo Rainone

Journal of Financial Markets, 2020, vol. 47, issue C

Abstract: Interest rates in money markets are fundamental indicators of the smooth transmission of the policy rate and of the stability of the financial system. The decentralized nature of this market can generate equilibrium interest rates that depend on the structure of the relationships among banks. I propose a structural econometric model to test it. The method is applied to a unique dataset of euro unsecured loans and characteristics of banks from 2008 to 2012. I find that the network structure played a greater role during the sovereign debt crisis, when risk preferences and bargaining powers of market participants changed dramatically.

Keywords: Interbank markets; Trading networks; Financial stability; Spatial autoregressive models; Market microstructure; Monetary policy (search for similar items in EconPapers)
JEL-codes: C21 D40 D85 E40 E52 F65 G01 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:47:y:2020:i:c:s1386418119303556

DOI: 10.1016/j.finmar.2019.100525

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