Market-specific and Currency-specific Risk during the Global Financial Crisis: Evidence from the Interbank Markets in Tokyo and London

Shin-ichi Fukuda ()

No CIRJE-F-759, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper explores how international money markets reflected credit and liquidity risks during the global financial crisis. After matching the currency denomination, we investigate how the Tokyo Interbank Offered Rate (TIBOR) was synchronized with the London Interbank Offered Rate (LIBOR) denominated in the US dollar and the Japanese yen. Regardless of the currency denomination, TIBOR was highly synchronized with LIBOR in tranquil periods. However, the interbank rates showed substantial deviations in turbulent periods. We find remarkable asymmetric responses in reflecting market-specific and currency-specific risks during the crisis. The regression results suggest that counter-party credit risk increased the difference across the markets, while liquidity risk caused the difference across the currency denominations. They also support the view that a shortage of US dollar as liquidity distorted the international money markets during the crisis. We find that coordinated central bank liquidity provisions were useful in reducing liquidity risk in the US dollar transactions. But their effectiveness was asymmetric across the markets.

Pages: 33pages
Date: 2010-09
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cirje.e.u-tokyo.ac.jp/research/dp/2010/2010cf759.pdf (application/pdf)

Related works:
Journal Article: Market-specific and currency-specific risk during the global financial crisis: Evidence from the interbank markets in Tokyo and London (2012)
Working Paper: Market-specific and Currency-specific Risk During the Global Financial Crisis: Evidence from the Interbank Markets in Tokyo and London (2011)
Working Paper: Market-specific and Currency-specific Risk during the Global Financial Crisis: Evidence from the Interbank Markets in Tokyo and London (2010)
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:tky:fseres:2010cf759

Access Statistics for this paper

More papers in CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by CIRJE administrative office ().