The Cost of Collateralized Borrowing in the Colombian Money Market: Does Connectedness Matter?

Constanza Martínez and Carlos León

Borradores de Economia from Banco de la Republica de Colombia

Abstract: Under the view that the market is a weighted and directed network (Barabási, 2003), this document is a first attempt to model the Colombian money market within a spatial econometrics framework. By estimating two standard spatial econometric models, we study the cost of collateralized borrowing (i.e. sell/buy backs) among Colombian financial institutions, and its relationship with the effects induced by traditional variables (leverage, size and borrowing levels), and by spatial variables resulting from observed linkages among financial institutions. The model that best fits the data is the Spatial Durbin Model, whose main findings indicate that (i) traditional variables are of low explanatory power by themselves; (ii) there exists a significant spatial dependence with regard to the cost of collateralized borrowing; (iii) the inclusion of spatial lags of the same traditional factors results in a model able to explain the existence of borrowing spreads that vary across financial institutions despite the collateralized nature of sell/buy backs; (iv) direct and spill-over effects from the spatially lagged value of financial leverage are the most significant for determining the cost of collateralized borrowing. Results are valuable since making connectedness an explanatory variable breaks with the traditional (reductionist) understanding of financial markets, which concurs with the current interest in the macro-prudential perspective of financial stability.

Keywords: Money market; interbank; collateral; collateralized borrowing; spatial econometrics. (search for similar items in EconPapers)
JEL-codes: C31 G21 G32 (search for similar items in EconPapers)
Pages: 23
Date: 2014-01
New Economics Papers: this item is included in nep-geo and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.32468/be.803 (application/pdf)

Related works:
Journal Article: The cost of collateralized borrowing in the Colombian money market: Does connectedness matter? (2016)
Working Paper: The Cost of Collateralized Borrowing in the Colombian Money Market: Does Connectedness Matter? (2014)
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:bdr:borrec:803

Access Statistics for this paper

More papers in Borradores de Economia from Banco de la Republica de Colombia Cra 7 # 14-78. Contact information at EDIRC.
Bibliographic data for series maintained by Clorith Angélica Bahos Olivera ().