Market-specific and currency-specific risk during the global financial crisis
Subtitle: evidence from the Interbank markets in Tokyo and London
By: Shin-ichi Fukuda
Contributors: National Bureau of Economic Research
Series: NBER working paper series -- working paper 16962; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16962.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "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"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/23/2011.

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