A Study on the Transmission of Money Market Tensions in EMEAP Economies During the Credit Crisis of 2007 - 2008

Laurence Fung and Ip-wing Yu
Additional contact information
Laurence Fung: Research Department, Hong Kong Monetary Authority
Ip-wing Yu: Research Department, Hong Kong Monetary Authority

No 909, Working Papers from Hong Kong Monetary Authority

Abstract: The recent tension in the interbank markets following the global financial crisis has raised concerns about the turbulence in interbank markets. This paper utilises two widely used indicators for measuring interbank stress (the interbank rate less the Overnight Index Swap rate and the interbank rate less the yield of government securities) to examine the transmission of interbank tension from the US dollar to nine interbank markets in the EMEAP economies. Using a vector autoregression model, we show that during the credit crisis of 2007 - 2008, the distress in the US dollar money market had a material impact with durations of seven to 13 days on the interbank markets for the Hong Kong dollar, Japanese yen, Australian dollar and New Zealand dollar. Moreover, based on a bivariate regime switching ARCH model, we also find evidence of volatility co-movement between the interbank stress indicator of the US dollar and that of the Hong Kong dollar, Japanese yen, Australian dollar, New Zealand dollar, Korean won and Singapore dollar during the crisis. The expected duration when two money markets are both in a high-volatility state is estimated to be as long as seven days. The short-lived impact on the EMEAP economies from a shock in the US dollar money market can be attributed to the policy actions taken by central banks and monetary authorities in the region and the coordinated efforts by policy makers worldwide to contain the credit crisis.

Keywords: Interbank stress; Vector autoregression; Regime-switching ARCH (search for similar items in EconPapers)
JEL-codes: E50 E58 G15 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2009-05
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP09_09_full.pdf (application/pdf)

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:hkg:wpaper:0909

Access Statistics for this paper

More papers in Working Papers from Hong Kong Monetary Authority Contact information at EDIRC.
Bibliographic data for series maintained by Simon Chan (sstchan@hkma.gov.hk this e-mail address is bad, please contact repec@repec.org).