Network dependence in the euro area money market

Gerhard Rünstler

International Journal of Computational Economics and Econometrics, 2016, vol. 6, issue 3, 294-314

Abstract: I estimate network dependence effects in the euro area unsecured overnight interbank market during the financial crisis. I use linear spatial regressions to estimate the dependence of individual banks' trading volumes (and interest rates) on the trading volumes (and interest rates) of their network neighbours. Neighbours are defined from past trading relations. I find pre-dominantly negative dependence for net lending and the lending-borrowing interest rate spread, and positive dependence for total trading volume and borrowing rates. These effects are, however, generally small and significant only in periods of market turmoil or ECB interventions. The results suggest that neighbours act as a buffer in absorbing idiosyncratic liquidity shocks.

Keywords: euro area money markets; financial crisis; network analysis; spatial regressions; euro zone; network dependence; unsecured overnight interbank market; linear spatial regression; interest rates; trading volumes; trading relations; net lending; borrowing rates; buffers; liquidity shocks. (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijcome:v:6:y:2016:i:3:p:294-314

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