Liquidity Risk, Credit Risk and the Overnight Interest Rate Spread: A Stochastic Volatility Modelling Approach

Beirne, John; Caporale, Guglielmo Maria; Spagnolo, Nicola

doi:10.2139/ssrn.1641030

Cited by 35 publications

(1 citation statement)

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“…and Beirne et al (2010) show that during the subprime crisis the European Central Bank lost some of its control over the overnight interest rate. The analogous research for the Polish banking sector was performed by Kliber and Pluciennik (2011a) as well as by Kliber et al (2011), as well as Lu (2012).…”

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POLONIA dynamics during the years 2006–2012 and the effectiveness of the monetary Policy of the National Bank of Poland

Kliber

Płuciennik

et al. 2015

Empirica

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In the study we investigate the effectiveness of the National Bank of Poland in counteracting the negative results of the financial crisis in the Polish interbank market. The situation was exceptional in a sense, that during the period of the financial crisis the Polish interbank market experienced liquidity surplus, and the main problem of the central bank was to regain confidence among commercial banks and stimulate interbank transactions. We concentrate on the spread between the rate of overnight interbank loans and the reference rate and based upon its dynamics we assess the monetary policy of the Polish central bank. Using econometric techniques we study how the central bank influenced the spread, when its control over it weakened and when was it strengthened. The study is supported by the results of the survey directed to the headquarters of commercial banks. We conclude that the ability of the central bank to control overnight rate wasThe views in this paper should be regarded as those of the author, and do not necessarily reflect those of the National Bank of Poland. temporarily lost during the first phases of the financial crisis, but gradually regained after implementation of the confidence pact.The aim of the research was to assess the ability of the Polish central bank to control the rate of overnight loans in the Polish interbank market and conduct its monetary policy during the confidence crisis, as well as facing the liquidity surplus. The Polish interbank market is special in a sense that liquidity surplus has been present there even since 1994 (National Bank of Poland 2009). However, together with the outbreak of the financial crisis, the confidence in the Polish interbank market declined drastically. Commercial banks preferred to accumulate liquidity surplus and performed almost no interbank transactions of maturity longer than 7 days. Banks preferred to keep their surplus on their current accounts with the central bank or in the form of deposit facility, and they significantly limited participation in the 7-day open market operations conducted by the National Bank of Poland (NBP) (National Bank of Poland 2009). The latter resulted in the so called underbidding (i.e. the situation during the tenders for the NBP bills, when the banks' total bid is lower than the supply offered by the central bank). As a consequence, the effectiveness of the central bank in stabilization of the market rates, what is one of the main goals of the monetary policy, diminished significantly.Our goal was to assess the effectiveness of the monetary policy of the Polish central bank, using econometric methods, as well as with respect to the results of the survey, sent to the head-quarters of the Polish commercial banks. The problem of assessing the effectiveness of the stabilization policy of central banks using econometric methods is also rather new in literature. Panigirtzoglou et al. (2000) studied the effectiveness of controlling the interbank rates through the key interest rates of the central banks of Grea...

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POLONIA dynamics during the years 2006–2012 and the effectiveness of the monetary Policy of the National Bank of Poland

Kliber

Płuciennik

et al. 2015

Empirica

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Union membership and employment dynamics: A note

Dittrich

Schirwitz

2011

Economics Letters

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We analyze union behavior in a model with membership dynamics and compare the labor market outcomes to static union models. Based on empirical findings we modify standard models and show that the well-known result that static models overstate distortions caused by unions only holds in the special case of firm-level wage setting. If, however, the union is big enough to determine employment for the whole sector, it rather depends on both the elasticity of labor demand and union's time preference whether static frameworks overrate or even underrate unions' distortions. Terms of use: Documents in EconStor mayJEL-Code: C61, J50, J51.

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Risk premia in general equilibrium

Posch¹

2011

Journal of Economic Dynamics and Control

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This paper shows that non-linearities can generate time-varying and asymmetric risk premia over the business cycle. These (empirical) key features become relevant and asset market implications improve substantially when we allow for non-normalities in the form of rare disasters. We employ explicit solutions of dynamic stochastic general equilibrium models, including a novel solution with endogenous labor supply, to obtain closed-form expressions for the risk premium in production economies. We find that the curvature of the policy functions affects the risk premium through controlling the individual's effective risk aversion.JEL classification: E21, G11, O41

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Liquidity Risk, Credit Risk and the Overnight Interest Rate Spread: A Stochastic Volatility Modelling Approach

Cited by 35 publications

References 34 publications

POLONIA dynamics during the years 2006–2012 and the effectiveness of the monetary Policy of the National Bank of Poland

POLONIA dynamics during the years 2006–2012 and the effectiveness of the monetary Policy of the National Bank of Poland

Union membership and employment dynamics: A note

Risk premia in general equilibrium

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