Short-Term Liquidity Contagion in the Interbank Market

Carlos León, Constanza Martínez and Freddy Cepeda-Lopez

Revista Cuadernos de Economia, 2019, vol. 38, issue 76, 51-80

Abstract: We implement a modified version of DebtRank to recursively measure the contagion effects caused by the default of a selected financial institution. In our case contagion is a liquidity issue, measured as the decrease in financial institutions’ short-term liquidity position across the Colombian interbank network. We find that contagion negative effects are concentrated in a few financial institutions. However, as most of their impact is conditional on the occurrence of unlikely major widespread illiquidity events, and due to the subsidiary contribution of the interbank market to the local money market, their overall systemic importance is still to be confirmed. ***** Implementamos una versión modificada de DebtRank para medir de manera recursiva los efectos de contagio causados por la cesación de pagos de una institución financiera. En nuestro caso, el contagio es un problema de liquidez, medido como la caída en la liquidez de corto plazo de las instituciones en la red interbancaria colombiana. Encontramos que sus efectos negativos están concentrados en pocas instituciones. Pero como estos en su mayoría son condicionales a la ocurrencia de eventos improbables de iliquidez generalizada, y debido a la contribución subsidiaria del mercado interbancario al mercado monetario local, su importancia sistémica total está aún por confirmarse.

Keywords: financial networks; contagion; default; liquidity; DebtRank; redes financieras; contagio; cesación de pagos; liquidez; DebtRank. (search for similar items in EconPapers)
JEL-codes: C63 G21 L14 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://revistas.unal.edu.co/index.php/ceconomia/article/view/55758/70017

Related works:
Working Paper: Short-Term Liquidity Contagion in the Interbank Market (2015)
Working Paper: Short-Term Liquidity Contagion in the Interbank Market (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000093:017471

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