Authors: Gerhard Rünstler
Addresses: Financial Research Division, European Central Bank, Sonnemannstrasse 20, 60594 Frankfurt am Main, Germany
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.
International Journal of Computational Economics and Econometrics, 2016 Vol.6 No.3, pp.294 - 314
Received: 05 Dec 2014
Accepted: 07 Aug 2015
Published online: 13 Apr 2016 *