Download or read book Frictions in the Interbank Market written by Cornelia Rösler and published by . This book was released on 2018 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the financial crisis it is evident that the functioning of the interbank market is vital for the stability of the financial markets. In this paper I look at its regularities in traded volumes due to regulatory requirements and the impact of frictions. The frictions identified (squeezing, credit risk, uncertainty and exposure to asset markets) affect each segment of the interbank market differently. In combination with the empirical regularities those frictions amplify the segmentation of the interbank market, thus inhibiting the efficient redistribution of liquidity within this market. The analysis combines data on the unsecured and secured overnight market with data on the use of the standing facilities at the Eurosystem, which is spearheaded by the European Central Bank. Before Lehman allocational inefficiencies can be detected. During the crisis the interbank market is mainly characterized by the impact of credit risk, which leads to market segmentation. Moreover, there is a link to other asset markets impacting the distribution of liquidity. Higher expected stock market volatility raises the demand for repo transactions in liquid assets. Finally, the results suggest that frictions persist in the course of the crisis despite the extensive measures taken by the Eurosystem.
Download or read book Frictions in the Interbank Market and Uncertain Liquidity Needs Implications for Monetary Policy Implementation written by Monika Bucher and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Market Frictions Interbank Linkages and Excessive Interconnections written by Mr.Pragyan Deb and published by International Monetary Fund. This book was released on 2016-08-26 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies banks' decision to form financial interconnections using a model of financial contagion that explicitly takes into account the crisis state of the world. This allows us to model the network formation decision as optimising behaviour of competitive banks, where they balance the benefits of forming interbank linkages against the cost of contagion. We use this framework to study various market frictions that can result in excessive interconnectedness that was seen during the crisis. In this paper, we focus on two channels that arise from regulatory intervention—deposit insurance and the too big to fail problem.
Download or read book Monetary Policy and Cross border Interbank Market Fragmentation written by and published by . This book was released on 2018 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a two-country model with an enhanced banking sector featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure of the economy; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in interbank funding costs, aggravating the initial shock; and (iii) central bank asset purchases and long-term refinancing operations can be effective substitutes for, or supplements to, conventional monetary policy.
Download or read book Does a Bank Levy Increase Frictions on the Interbank Market written by Aneta Hryckiewicz and published by . This book was released on 2018 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The crisis has shown that a drop in liquidity, as well as the shortened maturity of interbank transactions, has caused many problems for banks. We analyze how the introduction of a bank levy on bank assets in Poland has affected the interbank market, as well as money market pricing. Analyzing daily volume and number of interbank transactions, along with daily bank quotes, we document that the bank levy has significantly reduced trading intensity on the market, shortening the maturity of transactions. We also find that it has increased the dispersion of bank quotes for short-term transactions, while at the same time “killing” interbank long-term transactions, including the pricing for this market. The regulators should re-think the nature of bank levies in several countries, as they negatively affect the functioning of the interbank market and brings into question the credibility of interbank benchmarks.
Download or read book Interbank Frictions Business Cycle Fluctuations and Monetary Policy Trade offs written by Yujung Suh and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The Great Recession and consequent slow overall economic recovery have reignited research interests in financial factors in business cycle fluctuations and monetary policy rules. In the recent financial crisis, highly interconnected and leveraged financial institutions through wholesale financial markets have been blamed as the main culprit in exacerbating the initial shock in the financial market. The role of market-based financial institutions in the supply of credit has been expanded in the United States especially before the Great Recession. The market-based institutions have used securitization as one of their important tools to raise funds. Market-based lending and the related securitization process are a part of the shadow banking system, which is broadly defined as ''credit intermediation involving entities and activities (fully or partially) outside the regular banking system'' by the Financial Stability Board. My dissertation investigates the importance of financial factors in the business cycle fluctuations and monetary policy rules. The first chapter explores the role of interbank friction shocks in accounting for the business cycle fluctuations. I augment financial intermediation of Gertler and Kiyotaki (2011) with an otherwise standard New Keynesian DSGE model with nominal rigidities in wages and prices. I then fit the model to US data, using two new financial variables (interbank loans and the net worth of banks) in the literature and allowing the interbank frictions to vary over time following exogenous shocks to these frictions. According to the Bayesian estimation of the model, shocks to interbank frictions are important factors in explaining the fluctuations of the economy, accounting for 7% of the output fluctuations, 11% of the investment fluctuations, 53% of the fluctuations in the premium and 8% of the fluctuations in interbank loans. Analyses of historical decompositions show that interbank frictions shock plays an important role in the movement of key macro variables early in the downturn of the recent financial crisis. In the second chapter, I evaluate the effect of financial frictions and shocks on monetary policy. The identification method of Justiniano, Primiceri and Tambalotti (2011) is adopted to tackle the criticism on the identification between labor supply shocks and wage markup shocks by Chari, Kehoe and McGrattan (2009). The model is re-estimated with more data series on nominal wage inflation and the output gap, defined as the difference between the actual output and potential out, is derived. The output gap is estimated to be large and displays low-frequency movements under Taylor-rule type monetary policy. Estimated shocks including interbank friction shocks then are fed into the model under Ramsey optimal monetary policy to evaluate the impact of financial shocks on the evolution of the economy and the counterfactual simulation on the evolution of the economy is conducted. The counterfactuals show that, unlike the volatile movements of output gap under Taylor-rule type monetary policy, the output gap is more stabilized and the trade-offs between conflicting policy objectives are moderate if monetary policy is conducted optimally. The last chapter explores the possibility of regime shifts in the financial frictions and the volatility of shocks to financial frictions. The preliminary estimation results on the regime-switching DSGE model show that the regime has switched between low friction and high friction regimes. At this sage, the results are mostly preliminary since the numerical optimization may stop at a local but not global maximum of the posterior distribution due to the possibility that the objective function is flat or multimodal with shifts in regimes. More through results will be obtained by gradient-free global optimization methods. The artificial bee colony (ABC) algorithm and the differential evolution algorithm are now employed to estimate the regime-switching DSGE model in the last chapter.
Download or read book Market Frictions Interbank Linkages and Excessive Interconnections written by Mr.Pragyan Deb and published by International Monetary Fund. This book was released on 2016-08-26 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies banks' decision to form financial interconnections using a model of financial contagion that explicitly takes into account the crisis state of the world. This allows us to model the network formation decision as optimising behaviour of competitive banks, where they balance the benefits of forming interbank linkages against the cost of contagion. We use this framework to study various market frictions that can result in excessive interconnectedness that was seen during the crisis. In this paper, we focus on two channels that arise from regulatory intervention—deposit insurance and the too big to fail problem.
Download or read book Precautionary Reserves and the Interbank Market written by Adam Ashcraft and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Overnight Interbank Market written by Alessandro Prati and published by . This book was released on 2006 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study of the major industrial countries' interbank markets for overnight loans links the behavior of very short-term interest rates to the operating procedures of the countries' central banks. Previous studies have focused on key features of the U.S. federal funds rate's behavior. We find that many of these features are not robust to changes in institutional details and in the style of central bank intervention, along both cross-sectional and time-series dimensions of our data. Our results suggest that the empirical features of the day-to-day behavior of short-term interest rates are more strongly influenced by institutional arrangements than by extensively researched market frictions.
Download or read book Does interbank market matter for business cycle fluctuation written by Federico Giri and published by . This book was released on 2014 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book ESSAYS in Lending Frictions The Labor Market and Monetary Policy written by and published by . This book was released on 2015 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Great Recession of 2008-09 in the U.S. was characterized by high and persistent unemployment and lack of bank lending due to liquidity issues. The recession was preceded by a housing crisis that quickly spread to the banking and broader financial sectors. We attempt to account for the depth and persistence of unemployment by considering the relationship between credit and firm hiring explicitly. To do so, we introduce search and matching frictions to characterize the dynamics of credit markets in a series of macroeconomic models that present different types of distortions in the labor market as well as in the interbank market. We obtain a novel propagation and amplification mechanism of a financial crisis associated to an inefficiency wedge that affects the aggregate production function of the economy and depends directly on credit conditions.
Download or read book Conventional and Unconventional Monetary Policy in a DSGE Model with an Interbank Market Friction written by Jinyu Chen and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Capital Requirement and Financial Frictions in Banking written by Ali Dib and published by . This book was released on 2010 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: The author develops a dynamic stochastic general-equilibrium model with an active banking sector, a financial accelerator, and financial frictions in the interbank and bank capital markets. He investigates the importance of banking sector frictions on business cycle fluctuations and assesses the role of a regulatory capital requirement in propagating the effects of shocks in the real economy. Bank capital is introduced to satisfy the regulatory capital requirement, and serves as collateral for borrowing in the interbank market. Financial frictions are introduced by assuming asymmetric information between lenders and borrowers that creates moral hazard and adverse selection problems in the interbank and bank capital markets, respectively. Highly leveraged banks are vulnerable and therefore pay higher costs when raising funds. The author finds that financial frictions in the interbank and bank capital markets amplify and propagate the effects of shocks; however, the capital requirement attenuates the real impacts of aggregate shocks (including financial shocks), reduces macroeconomic volatilities, and stabilizes the economy.
Download or read book Essays on Banking and Financial Markets written by Bjö Hilberg and published by . This book was released on 2013 with total page 122 pages. Available in PDF, EPUB and Kindle. Book excerpt: Annotation This dissertation contributes to the theoretical and to the empirical literature on the relationship of banks and financial markets. The first two chapters consist of two theoretical studies which use different approaches to model the interaction of banks in the interbank market where liquidity is traded among banks in bilateral transactions. In the third chapter an empirical study assesses the degree of market discipline in the bank bond market which is an important source of debt-financing for banks. In the first chapter a heterogeneous banking sector is incorporated into a dynamic, stochastic, general equilibrium framework with financial frictions to analyze the effects of a central bank's collateral policy on interbank lending volumes. In the second chapter a partial equilibrium model of a bank's lending decision in the interbank market is developed. If lenders are assumed to possess only imperfect information about individual borrower characteristics there exists a relationship between the uncertainty about counterparty risk and the level of interbank lending activity. In the third chapter a panel data set of bank bond spreads and bank-specific risk factors is constructed and a structural break analysis is employed to assess the sensitivity of a bank's funding costs in the bond market to changes in its balance sheet risk.
Download or read book Covered Interest Parity Deviations Macrofinancial Determinants written by Mr.Eugenio M Cerutti and published by International Monetary Fund. This book was released on 2019-01-16 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic relationship applying to daily or weekly data. Not only have CIP deviations significantly increased since the GFC, but potential macrofinancial drivers of the variation in CIP deviations have also become significant. The variation in CIP deviations seems to be associated with multiple factors, not only regulatory changes. Most of these do not display a uniform importance across currency pairs and time, and some are associated with possible temporary considerations (such as asynchronous monetary policy cycles).
Download or read book Imperfect Competition in the Interbank Market for Liquidity as a Rationale for Central Banking written by Viral V. Acharya and published by . This book was released on 2015 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study liquidity transfers between banks through the interbank borrowing and asset sale markets when (i) surplus banks providing liquidity have market power, (ii) there are frictions in the lending market due to moral hazard, and (iii) assets are bank-specific. We show that when the outside options of needy banks are weak, surplus banks may strategically under-provide lending, thereby inducing inefficient sales of bank-specific assets. A central bank can ameliorate this inefficiency by standing ready to lend to needy banks, provided it has greater information about banks (e.g., through supervision) compared to outside markets, or is prepared to extend loss-making loans. The public provision of liquidity to banks, in fact its mere credibility, can thus improve the private allocation of liquidity among banks. This rationale for central banking finds support in historical episodes preceding the modern era of central banking and has implications for recent debates on the supervisory and lender-of-last-resort roles of central banks.
Download or read book Core Periphery Formation in Interbank Markets written by Maria Näther and published by . This book was released on 2018 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Interbank markets are fundamentally important for banks' liquidity management, for the transmission of monetary policy, and also for financial stability. In order to discuss issues of financial stability, the structure of interbank markets plays a crucial role. This paper provides a model on network formation in interbank markets. Due to bank opacity, there are informational frictions in the sense that not all actions of a bank can be observed by other market participants. To collect more information, banks can establish costly relationships to other banks and thereby increase the expected benefit of an interbank transaction. The cost of such a link reveals the quality of information between banks and a bank's monitoring efficiency. Our aim is to identify network structures that satisfy efficiency or unilateral stability. In particular, we ask under which conditions core-periphery networks are efficient or unilaterally stable. Under the assumption that linking costs are homogeneous, a core-periphery network is not unilaterally stable. However, heterogeneity can explain core-periphery formation. A core-periphery network is unilaterally stable if there is a group of sufficiently better informed or more efficient banks.
