When and how US dollar shortages evolved into the full crisis? Evidence from the cross-currency swap market

Naohiko Baba and Yuji Sakurai

Journal of Banking & Finance, 2011, vol. 35, issue 6, 1450-1463

Abstract: This paper investigates when and how the US dollar shortages evolved into the full crisis in the cross-currency swap market between major European currencies and the US dollar during the turmoil of 2007-2009, using the dynamic factor model with regime-switching [beta] coefficients of each swap price with respect to the latent common factor. The 1-year market entered the high-[beta] crisis regime soon after the onset of the subprime problem in August 2007. The 10-year market entered that regime following the collapse of Bear Sterns in mid-March 2008. Financial credit spreads have significant predictive power for switches between high and low-[beta] regimes.

Keywords: Global; financial; crisis; US; dollar; shortage; Currency; swap; Dynamic; factor; model; Regime-switching (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:6:p:1450-1463

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